Q3 2022 Global Payments Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to global payments third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. Later, we will open the lines for questions and answers.
If you should require assistance during this call. Please press Star then zero as a reminder, today's call 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 third quarter 2022 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 contain 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 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 could differ materially from 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 forward looking statements. During this call speak only as of the date of this call and we undertake no obligation to update them.
We will be 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 CFO , and Josh Whipple Senior Executive Vice President and CFO now I'll turn the call over to Jeff.
Thanks Whitney.
We delivered record results in the third quarter consistent with the higher end of our September 2021 cycle guidance on a constant currency basis and excluding dispositions.
Highlighting the resiliency of our business model and our consistency of execution across market cycles.
Importantly, our merchant business again delivered double digit revenue growth in our core issuer business continues to produce sequential improvement consistent with our expectations each on a foreign exchange neutral basis.
Internal metrics, thus far into October .
Continuing solid performance for the fourth quarter.
Much of September did versus August and August versus July .
Certainly possible that things could change for the worse given ongoing macroeconomic concerns, but that would require an adverse change that we do not broadly see in the current environment.
Notably we are achieving these results, while making substantial progress on our strategic and financing initiatives.
We received Hart Scott Rodino clearance in the United States for our acquisition of Evo payments and divestiture of <unk> consumer business and we have now made regulatory filings in all jurisdictions foreign and domestic contemplated by the transactions.
We took steps to finance the Evo transaction with a successful two and a half billion dollar fixed income offering in early August at attractive rates and we undertook a concurrent long term extension and enhancement of our revolving credit facility.
We also completed our $1 5 billion strategic investment with silver Lake and associated transactions.
We are proud of the company that we keep and we welcome senior partner, Joe Osmose from Silver Lake to our board of directors.
Our issuer business remains on track for continued core growth acceleration into yearend following an acceleration into the third quarter. After a robust Q2.
Our relationships with many of the most complex and sophisticated institutions globally.
Speak to our competitiveness well into the remainder of this decade.
Our issuer conversion pipeline now stands at a record post merger of 75 million accounts, providing further confidence if our growth trajectory.
Well into the future.
Yeah.
What better example than our recent go lives with one of the top 10 commercial banks in the United States, which was a competitive takeaway early after the announcement of our merger.
We are delighted that earlier this month, we began onboarding and servicing the bank's new consumer and small business commercial accounts on <unk> two.
We expect this partner to be prepared for the conversion of its existing consumer and commercial accounts early next year.
This quarter, we also converted the consumer and commercial portfolios for another large U S based bank as a new customer as well as a large retail portfolio acquired by an existing financial institution partner.
Both of which were competitive takeaways and.
And we continue to make great progress with AWS or preferred issuer technology solutions partner for unique distribution and cutting edge technologies.
We were pleased to announce that we have reached an LOI with a leading global travel technology company, who chose pieces as its issuer solutions partner for its platform across the U K and EU after an extensive RFP process.
Once live this will be our first fintech customer on prime in the AWS cloud in Europe .
We currently have seven letters of intent with institutions worldwide, nearly all of which were achieved through a competitive RFP process.
And a competitive takeaway.
Another seven of our recent LOI, including five competitive takeaways have gone to contract since the beginning of 2022, providing further future growth opportunities.
Traditional accounts on file increased by $14 million sequentially. This quarter, driven by account growth with existing customers as our strategy of aligning with market share winners continues to pay dividends.
And transaction volumes grew double digits in Q3 led by commercial card transactions, which increased 25% highlighting ongoing recovery trends in cross border corporate travel and the strength of our long lasting partnerships.
At our Investor Conference last September we announced <unk> as a fourth that newest pillar of our strategy.
Meaningfully expanding our target addressable markets.
This quarter, we are now managing <unk> b to B assets as a part of our issuer business after successfully aligning militaries capabilities with this segment earlier this year.
We are delighted with the momentum we're seeing across our <unk> portfolio, which includes technology centered on virtual card solutions.
<unk> 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 bank card rails.
Recent BW highlights include providing virtual commercial account services to banks and Fintech in partnership with extend.
Reaching a letter of intent with specialty Fintech Eatin Bowl.
To enable commercial expense management, and integrated payable solutions and signing a multiyear commercial card agreement with Santander in the United States as a competitive takeaway.
We're also pleased to have signed new virtual card services, and <unk> services and wins with two leading U S financial institutions.
Additionally, mineral tree achieved a number of milestones, including Sarnia marquee deal with Grupo Bimbo in the U S and Canada, one of our largest BTB bookings to date.
Generating record breaking virtual card spend in the month of September .
And executing a referral agreement with Fintech ramp to cross sell expense management and card on file capabilities.
We're also pleased to have recently enhanced our relationship with visa to support their branded cards and the payable space.
And this is all of course before augmenting our <unk> capabilities with <unk>, leading accounts receivable automation software solutions, including its extensive proprietary integrations to some of the most widely used ERP environment in the market. So it's paid fabric platform, including SAP, Microsoft Oracle IQ Medica and Sage.
Moving to merchant solutions, we are pleased to announce in partnership with Google there'll be a partner with genuine parts company to deliver innovative cloud based payment solutions for the extensive Napa auto parts domestic distribution network.
Leveraging the combined power of global payments and Google Cloud Napa will streamline commerce operations for <unk> transactions across the United States.
We continue to expand our acquiring relationship with Google in North America. Following the success of our initial launch in Asia Pacific late last year.
Volumes are now building in the U S market with Google as a customer and we expect the ramp to continue throughout this quarter.
We also anticipate bringing our partnership with Google to Europe next year.
Additionally, we remain on track to launch phase two of Google, One and grow my business to help our merchants grow faster by connecting additional Google services toward digital platform this quarter.
We get again delivered solid growth in our E com and Omnichannel business, but the third quarter.
Well ahead of the markets as we have done all year.
We continue to benefit from our unique ability to seamlessly blend the physical and virtual worlds in more markets than our peers and of course, the pending acquisition of Evo and.
And entry into new geographies, like Poland, and Germany will enhance our target addressable markets.
We are excited to have recently reached an agreement to expand our E Commerce partnership with Gucci, a division of French multinational corporate caring for acceptance services beyond Europe and into Asia Pacific, where we will deliver a uniform solution and seamless experience virtually but one of the most sophisticated luxury retail brands.
Our partnership with city B of UCP recently went live in Spain, France, and Italy, and we continue to expect to go live in Belgium, Denmark, Finland, Norway, and Sweden prior to year end.
Together, we are currently targeting city's largest treasury and trade solutions customers and are excited to announce city recently signed one of the world's top social media platforms and one of the world's top e-commerce markets platforms.
Our vertical markets portfolio, we saw a significant return to growth in school solutions as expected and this business delivered substantial improvement in the quarter with the lapsing of pandemic era subsidies on school lunches.
Also our <unk> business continues to post solid wins in the sports and entertainment areas.
With new signings with the Carolina Panthers, and the Winnipeg Jets and our pipeline in this channel remains robust.
Lastly, we continue to see strong double digit growth in our real estate vertical market business does he go with our new flexible payments product driving significant demand for digital solutions.
Lastly, I am delighted to announce that we launched our merchant referral relationship with Virgin money in the United Kingdom. This quarter and are already realizing strong lead flow and new signings from this partnership.
We also remain on track to launch Virgin Money's, New pay proposition early next year.
We did exactly what we said we would do in the third quarter of 2022.
Our core businesses continued their track record of extraordinary growth and are well positioned heading into year end.
Our strategic investments are tracking to plan and our new partnerships are right in line with our expectations were.
We are very fortunate to be in a position that we are in heading into the final quarter of the year.
Josh.
Thanks, Jeff.
We're pleased with our strong financial performance in the third quarter, which was consistent with our expectations despite ongoing macro concerns.
Specifically, we delivered adjusted net revenue of 2.06 billion.
An increase of 6% from the prior year on a constant currency basis.
Excluding the impact of our exit from Russia, and then that spend consumer assets, which are classified as held for sale. Adjusted net revenue was 193 billion.
An increase of 9% on a constant currency basis.
Adjusted operating margin for the quarter.
240 basis points to a record 45, 2%.
The net result was adjusted earnings per share of $2 48.
An increase of 18% from the prior year on a constant currency basis, which includes absorbing the impact of the exit of our Russia business during Q2.
This performance highlights outstanding execution of our differentiated technology enabled strategy.
Taking a closer look at our performance by segment.
Merchant solutions achieved adjusted net revenue of $1 45 billion for the third quarter.
A 10% improvement on a constant currency basis, and approximately 11% excluding the impact of Russia.
We delivered an adjusted operating margin of 50% in this segment, an increase of 80 basis points year on year on a foreign exchange neutral basis.
Our combined U S payments and payroll business delivered another strong quarter.
Led by our integrated channel, which again reported mid teens growth.
And we continue to see strong momentum in our POS software solutions, which grew nearly 30% this quarter on.
On top of over 70% growth in Q3 of 2021.
As well as our HCM and payroll business, which grew mid teens in the quarter.
Our worldwide E Commerce, and Omnichannel businesses also delivered growth in the teens on a constant currency basis. This quarter as we continued to see strong demand for our omnichannel solutions across our business.
And our vertical market solutions again achieved double digit growth compared to the prior year.
Led by strength in our school solutions business and Ziegel, while bookings trends remained solid across the portfolio.
Outside the U S. Despite ongoing headwinds from adverse foreign currency exchange rates and continued COVID-19 related restrictions in parts of Asia Pacific.
Overall macro backdrop remains relatively stable.
And we continue to gain share.
Specifically, we continue to see strong revenue improvement and key faster growth geographies, including Spain Central Europe .
South East Asia.
As we are seeing significant demand for our differentiated capabilities outside the U S that are well aligned with shifting consumer customer needs coming out of the pandemic.
Turning to issuer solutions this business delivered $489 million and adjusted net revenue.
Which is a 6% improvement on a constant currency basis from the third quarter of 2021 <unk>.
Including <unk> B to B assets in both periods.
Excluding the impact of BBB.
Issuer solutions core growth accelerated 20 basis points from the second quarter and was consistent with our long term targets as we anticipated.
Our transaction and account on file revenue grew high single digits and was consistent with the second quarter performance.
As Jeff mentioned, our commercial card transactions increased 25%.
With growth improving throughout the period.
Yes, sure adjusted operating margin of 46, 4% increased 310 basis points from the prior year.
Fueled by accelerating growth and also by our focus on driving efficiencies in the business.
We are pleased that our issuer team signed two new partners in one contract extension during the quarter.
Additionally, as Jeff mentioned, our pipeline remains at record levels.
As we continue to see good sales activity in all markets for new clients and cross sell opportunities.
This includes the growing list of opportunities we have in collaboration with AWS.
Overall, the outstanding results, we delivered across our merchant and issuer businesses. This quarter serves as a proof point of the wisdom of our strategy and resiliency of our model.
While we also continue to make significant financial flexibility.
From a cash flow standpoint, we delivered $640 million of adjusted free cash flow for the quarter after investing $139 million in capital expenditures.
We continue to expect capital expenditures to be roughly 600 million for the full year.
On the capital allocation front, we repurchased $6 9 million of our shares for approximately $890 million during the period.
Our balance sheet remains extremely healthy.
We ended September with roughly $3 5 billion of liquidity.
And leverage of three one times on a net debt basis.
We made substantial progress on our strategic priorities this quarter, including the related financing initiatives.
In August we successfully completed a $2 5 billion senior unsecured notes offering with a blended yield of five 5% and an average duration of 14 five years.
It's worth noting that the rates achieved in this offering are well below current market rates.
We also completed the $1 5 billion in strategic investment in the form of privately placed convertible senior notes with silverlake with a 1% coupon.
As is customary with convertible instruments.
We executed a cap call transaction that significantly raised the effective conversion premium to approximately $230 per share.
We are delighted to have silverlake as a new partner or capital structure consists of 100% fixed.
Fixed rates currently.
We used the proceeds from these offerings to pay down our existing term loan and the outstanding balance on our revolving credit facility.
And we simultaneously closed a new $5 75 billion revolving credit facility that provides us with ample financial flexibility.
Following the completion of the Evo and that spend consumer transactions.
Which we continue to anticipate closing by the end of the first quarter, we expect our net leverage to be approximately three nine times we.
We expect to return to current leverage levels by year end calendar 2023, while maintaining our current investment grade ratings.
Turning to the outlook for the remainder of 2022.
Given the underlying trends, we are seeing our expectations for the core business remains unchanged from our August call.
We continue to expect full year constant currency adjusted net revenue growth of 10% to 11% over 2021, excluding the impact of dispositions.
On a reported basis, we now expect foreign currency to be roughly a 300 basis point headwind to adjusted net revenue growth for 2022.
Or an incremental 100 basis points relative to the outlook we provided in August .
Including these incremental FX headwinds the reclassification of <unk> consumer assets to held for sale and the exit of our Russia business we.
We expect to report adjusted net revenue in a range of $7 8 billion to $7 9 billion for 2022.
We are increasing our expectations for adjusted operating margin expansion to up to 170 basis points for the full year as compared to our prior outlook of up to 150 basis points.
Lastly.
Consistent with our prior outlook, we continue to expect adjusted earnings per share on a constant currency basis to be in a range of $9 53.
To $9 75.
Reflecting growth of 17% to 20% over 2021.
We now expect FX headwinds to impact adjusted earnings per share by roughly <unk> 30 for the full year.
An increase of an additional approximately 13.
From our Q2 call in early August .
As a result.
We now expect to report adjusted earnings per share in a range of $9 32.
To $9 55.
Albeit at the low end of the range given our exit from Russia, and the sheer magnitude of the foreign currency impacts we are absorbing.
In summary.
We are very pleased with our third quarter performance. Our merchant segment led by our technology enabled strategy continues to excel and underlying trends in the business remains strong.
Together with a record pipeline successes of our modernization efforts and.
And enhanced <unk> focus in our issuer segment.
We are well positioned for the future.
And with that I'll turn the call back over to Jeff.
Thanks, Josh.
We delivered record performance again in the third quarter as we have throughout 2022.
Underlying fundamentals across our businesses remained broadly healthy.
While macroeconomic concerns are bound we do not see significant broad based evidence of softness and the trends that we've experienced to date or in the bookings and implementation pipelines that we have the good fortune to enjoy currently.
And with the dissipation of the pandemic, we are now back to typical financial and operating levels.
Despite the background noise, we continue to make significant progress on our strategic and financial initiatives in the third quarter.
The acquisition of Evo and the disposition of <unk> consumer assets remained squarely on track with our expectations.
Our debt capital raise in early August was well timed and executed our balance sheet remains strong and our new partnership with silver Lake is off to a terrific start.
These transformative transactions will serve to accelerate our strategy and provide us with enhanced confidence in our increased growth and margin targets over the cycle.
Upon the expected closing of these deals in early 2023 merchant solutions will represent approximately 75% of our adjusted net revenue with issuer solutions, including <unk> comprising roughly 25%.
We have multiple levers in each segment to continue to gain share over the cycle with a simpler model more geared toward our corporate customers with enhanced growth.
And margin prospects.
Happy Halloween everyone.
<unk>.
Thanks, Jeff.
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.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question.
Hey, guys. Thanks.
Maybe we just start off on the merchant side, when we dive into the moving parts on the drivers.
Youre going youre growing in line or actually a little bit better than the visa data I think it was 11% volume. It. So if you could just give us a little bit more color on what's driving the strength of your mines and what's sustainable about that.
Moving beyond just macro for a minute, but what's actually structurally really doing well versus not in that segment and then maybe if you want to just reiterate again, if youre not seeing or and if you are seeing any types of behavior consumer behavioral changes.
Okay.
Yes, good morning, Darrin, it's Cameron I'll jump in and I'll ask Jeff and Josh to add any color they'd like to so what I would say is if you look across the data the volume data in particular in our merchant business, we're seeing very good sort of stability and strength kind of across most of our sectors and I think what's particularly I think gratifying to me is when you look at our.
<unk>, which to your point is better than the networks and our peers that's without the benefit of the significant travel rebound that I think is propping up volume numbers for other people as we've talked about many many times, we don't really participate.
Widely in travel and entertainment and as a result of that we're not really seeing the strength of the recovery coming in those channels, which I know is driving a good portion of volume growth kind of across the sector. So I'm really pleased with the volume growth, we're able to produce notwithstanding the back we're not really exposed to that segment of the market as the first point I would make.
The second thing I would comment on is we are seeing I think largely what others are seeing in the marketplace consumers our focus more and more on experiences hospitality continues to be good in our space. Obviously retail is not quite as good as it was during the pandemic time as people have pivoted away from goods to more services and experiences and I think you are.
Seeing sort of volume trends in our portfolio that generally in line with that overall macro trend.
Last thing I'd say and kind of to the end of your question given the diversity that we have across our portfolio and how well positioned we are I'd say across 70, plus vertical markets from an exposure perspective, I think we feel pretty confident that the stability and strength in volume growth that we've seen over the last several quarters is sustained.
<unk> as we move forward in time, so we feel as if we're kind of operating now in a normal environment and the results that you saw in Q3 and kind of reflect.
Normal operating expectations for the merchant segment more broadly.
Last comment I'll make and sorry before I turn it over to Jeff is just we are still dealing with pockets of weakness around the globe as well. So im again pleased with the overall performance notwithstanding the fact that we're still seeing COVID-19 related impacts in Asia Pacific.
Obviously, the greater China markets continue to struggle with periodic lockdowns and travel restrictions et cetera, as it relates to their desire to have sort of a zero COVID-19 policy and of course, we're seeing a touch of macro impact in the UK, although relatively small portion of our business I think it's hard not to notice obviously the impact.
In the U K stemming from a variety of overall macro factors there and certainly that has weighed on the performance slightly as well, but if you look at everything in aggregate again very pleased with the overall sort of revenue growth and volume performance, we've seen across the portfolio, Yes, Darrin, It's Jeff I'd just add to what Cameron said, we see the same thing on the issuer business. So if you look at that.
For today for 2% constant currency kind of core issuer X the b to b assets growth, an acceleration versus the second quarter and consistent with what we expected you've seen pretty steady growth in accounts on file.
In transaction growth and authorizations and value added services I think we had a 14 million accounts in the quarter. We have a record implementation pipeline post merger of 75 million accounts that does not include kaisha, but we're tracking at the same metrics on the issuing side as Cameron mentioned on the merchant side, if anything I would say is on the cross.
<unk> commercial card as we said in the slide show was up 25% transactional.
In the in the third quarter and September was also as a month a really good month for commercial cards, So where we do have that exposure I think attracting very consistently with the networks and what Cameron described to merchant.
That's really helpful. Guys. Thanks, just one quick follow up and maybe Josh this might be a little bit more for you on the financial side, but when we look at the.
The quarter itself, obviously, there were some adjustments to try to figure out what the what the.
The core results are.
I guess there is Theres bridge financing that you guys added back, but then when looking at guidance Youre talking about FX adjusted but then you're also saying that FX was I think you said four or 500 basis points.
Embedded in it correct me if I'm wrong, maybe you could just reiterate again, what the reported outlook is for the year in terms of.
And if theres any other adjustments going on it just to be clear.
Yeah, absolutely. So thanks, Darren so as I said in my prepared remarks, we set for the year as a total of 300 basis points of FX headwinds and what I would say is our expectation for the core business remains exactly the same.
Constant currency adjusted net revenue growth of 10% to 11% in.
Constant currency and adjusted earnings of 17% to 20%.
If you look at our press release schedule 10, we've given in each of the components, where you can go ahead and break that out but hopefully that's helpful and thanks for your question.
Thanks, guys.
Thanks Darren.
Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.
Good morning, guys. Thanks, I just wanted to start with a question on the pending acquisition and divestitures. We think ahead to the close of both of those in Q1, I think last quarter, you had said that the.
The Evo earnings would offset the lost earnings from net spend consumer but I. Just wanted to clarify is that comment based on full run rate synergies being achieved at Evo I'm just trying to understand whether in 2023, there's any.
Net dilution here or not thanks.
Yes, so as you think about.
That spending evo together, depending on timing.
It's pretty much an asset swap where theyre offsetting one another so we would expect that to go ahead and be neutral from an overall accretion dilution perspective.
Jason its Kevin.
The only thing I'd add to that is you are correct. The commentary we provided last quarter at full run rate synergies Evo transaction and Thats been transaction do offset each other as an accretion dilution matter there roughly neutral so that does obviously assume we get to full run rate synergies on the Evo transaction I'd say, it's really too early to comment on 2023 will obviously.
<unk> more color as we get into the early part of the year and we have better line of sight on the timing of the close as you can imagine to Josh as point the timing of close of each of the individual transactions will drive kind of the outlook for 2023, but if we think about the long term trajectory of the business you know swapping out the consumer business, where evo a business with better revenue growth.
With potential better margin profile, and obviously, a strong kind of earnings contributor over time, when we get the full run rate synergies, we feel like is a very good.
Better positioning of the business for lack of better term for the long run.
Okay. Okay understood and then just as a follow up. Thank you you've steadily raised margin guidance. This year each quarter to a level thats well above your cycle guidance I think you've gotten a little bit of benefit from exiting Russia, but just wanted to understand a little bit more of the underlying drivers you would point to that are that are driving the outperformance.
<unk>.
And then if you can just make a quick comment on Q4 growth expectations for issuer. Thank you.
Yeah, I'll start Jason ask Josh and Cameron to comment as well. So I think the fundamental driver of expanded margins is better transactional underlying performance.
I know you know how our model is constructed but the more software resell the more transactions. We do you look at the 11% revenue growth, 11% volume growth, we announced today in the merchant segment you look at the acceleration in the issuer segment up four 2% core versus 4%.
In the second quarter Joshua content on the Guy, but we expect an increase in the fourth quarter. When you see those things going up those things all come in at a very high incremental margin at.
At the end of the day, so I would say the fundamental operating performance.
The company is whats really driving the expanded margin.
About the year and as we head into the fourth quarter, Josh, but took a little bit about the fourth quarter guidance. Yeah, absolutely. So I think the question was with regard to issuer and throughout the year, we've seen a really nice trend in the issuer business <unk>, obviously, and then <unk> to <unk>, we saw 20 basis points off of growth.
And what I would say is based on the.
Internal metrics that we're seeing now would suggest that through.
Through the first.
A month of the quarter that things are consistent with regard to what we saw in September was Geoff had mentioned.
Just a moment ago. So we feel very very good about the trends of the underlying business with an issuer and we expect to see those trends continue into the fourth quarter.
And Jason its Cameron I would just add one final point to that and it just reiterating something that we've said I'd say relatively consistently we're very focused on the business on profitable growth.
We really do emphasize making sure that we're growing in a way that has flow through with the profitability that allows us to continue to expand margin the mix of our business, particularly in merchant towards more technology enablement software et cetera.
<unk> earlier comment position.
Positions us well to continue to drive obviously attractive margin expansion in the business, but it's all sort of premise dawn and belief that we want to focus on profitable growth and we are not just booking kind of revenue growth for the sake of booking revenue growth, but it is flowing through and driving profitability for the business.
Okay. Thank you guys.
Thanks, Jason.
Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.
Hi, Good morning, guys just wanted to make sure we knew kind of maybe percentage of revenue of some of the areas of pockets of weakness.
Asia Pacific UK, maybe Canada, just so we have that in our models.
Yes, Brian Good morning, It's Cameron I'll jump in so we've talked about UK before it's about 5% of the merchant business roughly 3% of the total company revenue.
Canada is roughly the same size, it's actually slightly larger than the U K market, but again going to be in that sort of a little over 5% range and again, 3% on the on the total company Asia Pacific, It's more pockets of Asia Pacific. So, it's probably a third of that.
<unk> for the UK, and Canada, where we're seeing a little bit of weakness given the COVID-19 related restrictions and lockdowns. So I would say not material and Brian we've talked about for a long time, we don't need every market every geography every channel to perform perfectly for us to hit the expectations that we have for the business and I think this is a really good sort of example of that.
The performance in the quarter was very much in line with the expectations, we have our overall business, 11% constant currency revenue growth excluding Russia.
Which again is very good growth in that portfolio, notwithstanding again, not everything is going perfectly in every market around the globe. So that's our expectation as we move forward, we will continue to see.
Pockets of areas that may create challenges, but we feel poised to continue to produce growth consistent with our cycle guidance for the merchant segment.
Yes, no definitely definitely you can see that in the volumes and then maybe Jeff just as you think about the macro if it does deteriorate I know a common question you get and we get is what kind of contingencies.
Do you have in place to potentially protect EPS growth if the macro would deteriorate further.
Yes. Good question, Brian I don't think you have to look any further than our history. We've operated in more challenging macro environment than the one that we.
The one that we see today, Great example would be kind of early on in the pandemic. When we took an incremental $400 million evangelize cost saves out in a couple of weeks of which $200 million was was permanent that was probably six to nine months March 20. After we close the <unk> merger of course, where as we announced.
Sure.
Do you expect to close the Evo merger in the first quarter 23, when we do deals even beyond.
The normal operating environment, when we do deals we have the ability to accelerate the synergies. If you go back to our commentary on the synergy expectation for Evo, it's $125 million of annualized expense synergies I think we've assumed quite a third of those is I think what we said at the time on August 1st would be phased in that's the realized number in the first year, obviously, we have an ability to.
Move those around and accelerate those so we have a track record.
Over performing on our synergy expectations on the cost side and we also have the flexibility as we did in the case of that Tcs merger and even the heartland merger from accelerating synergy realization, if thats kind of what we need to do so listen as we think about it and as we said in our prepared remarks today the internal metrics through the first three weeks of October .
There arent really good place, we don't see any kind of broad based evidence.
If any impact from the macroeconomic environment, having said that we have plenty of levers.
That we can pull to manage to our expectations for 'twenty three and beyond I think if you look at the history Youll see how we've done that.
Got it happy Halloween.
Thanks, Brian .
Thank you. Our next question comes from the line of James Faucette with Morgan Stanley . Please proceed with your question.
Yes.
Thank you very much I wanted to follow up on Brian's question, there on an Evo and you mentioned the synergy potential.
As you've kind of starting to look more closely at that business can can you talk about like what are the puts and takes that you at least at this stage thing could come from that could move those synergies around and what are you finding there.
Maybe it is encouraging you to feel like a little bit optimistic.
In terms of potential to do more there than you've outlined.
Yes, Jamie this is Jeff I'll start and I'll comment a comment to it as a very good question. So.
Now that we're through the HSR regulatory period here in the United States, which was really the primary hurdle.
For us to perceive we're starting our integration activities imminently.
Obviously, we continue to do more of what I would say is.
For sure the BTB assets as we said at the time of the announcement of the transaction on August 1st we think are highly attractive I have spent time with Jim who's done an excellent job at Evo.
Were doing their <unk> business, particularly meeting with their software developers in Anaheim and a bunch of their operating businesses and Tampa and elsewhere are more bullish now even that I was on August 1st about opportunities in.
And.
<unk> as you know.
Global payments ex Evo for the time being has very aggressive targets on what we think we can do with our <unk> business, we expect that business to grow mineral train particular, 20% plus the calendar year that we're in today.
2022, and that's before the addition of <unk> assets I was very impressed with where they are on the development software sizing, Jim and the team in Anaheim and elsewhere have done a terrific job and very excited about the opportunity to combined go to market strategies.
And realize additional revenues in combination with <unk> camera with top performing.
Detail, yes, James It's Cameron I'll add a couple of other comments I would say in addition to be to be on the revenue side I think we're particularly excited about the prospects of bringing our product, particularly our commerce enablement solutions to Evo is international markets into the U S portfolio as well, but certainly internationally EBIT has done a great job sort of building.
<unk> businesses in these markets, but their product set is very payments oriented and I think we have a significant opportunity to augment what they're doing in market today, particularly in markets, where we don't operate.
By bringing our commerce enablement solutions some of our other product and solutions, particularly on the software side to those markets. So we see very strong I think revenue opportunities coming from that and then secondly, more on the expense side. Obviously, we have very much duplication in markets, where we overlap so U K, Spain, Mexico.
And then that gives us and certainly here in the U S market of course across the integrated channel and then EBIT is more traditional merchant business. Those areas are obviously going to provide meaningful opportunities for expense as we rationalize technology operating environment as go to market strategies across is overlapping businesses. So I would say sitting here today, we have high confidence.
And the synergy targets that we provided and certainly I think there's more revenue upside there.
That we can tap into as we progress in time, and we bring the businesses together, but certainly feel very good about our ability to achieve the $1 25 and.
In keeping with past practice, we are hopeful we'll find opportunities they've been exceed that as we bring the two businesses together over the next few years.
That's great color gentlemen, and then follow up question.
Obviously, it's not as important topic right now as it was maybe a year ago, but would love any update on how you're seeing your place in the NPL ecosystem develop.
Are you seeing more of the NPL integrations with global to try to drive more scale as opposed to those providers. The NPL providers trying to add merchants one by one and I guess, maybe more generally are you still bullish on global's place in the ecosystem as time goes by any update there would be helpful. Thanks.
Yes, Jamie this is Jeff I'll start and ask Cameron to join in too I'll speak to the issuer side first so we've made a tremendous amount of progress on the issuer side.
In <unk> and I think given our advantages with the 500 financial institutions pretty Evo.
We have relationships with today our perspective is.
Providing the NPL technologies and services to regulated responsible BMP in NPL providers, who are used to extending credit and provide AML and <unk> is absolutely the right thing to do.
We have a number.
Of.
Customer.
Implementations underway, particularly outside the United States in the United Kingdom for the NPL.
The take up rate from our traditional clients and issuer has been very high in fact, I would say I don't think we've ever had as we said in the slide show more of an implementation pipeline post merger.
Issuer and I don't think the funnel of opportunities beyond that in terms of what we're pursuing which includes the NPL.
It has ever been greater so I think our strategy all along of aligning with market share winners.
And the most successful traditional financial institutions as well as spin tax, including in particular and be NPL has been absolutely. The right thing to do and we're seeing a lot of traction in that area.
On the issuer side Cameron you want to comment on the things we're doing in merchant, yes, certainly on the on the merchant side, we launched our <unk> as a service solution earlier this year in the first quarter that allows our merchants to tap into whatever be NPL provider. They want to work with through our rails. So end of day as we've talked about over a period of time be NPL ultimately it just another <unk>.
Prior to payment mechanism. Our objective is to provide our merchants the opportunity to utilize us for all of their payment requirements.
To make sure that we have the rails to tap into would ever be NPL providers are in the marketplace. We're providing consolidated settlement reporting data analytics and all the value added services, we're able to provide to our merchants and we're doing that today not surprisingly and to your point, we are seeing to paying for that obviously slow in light of just what's transpired.
The course of this year, but again, we've done what we said we would do which are positioning ourselves to be able to provide <unk> as a service tap into all of the major be NPL providers in the marketplace today and allow our customers to have choice our clients to have choice around who they work with to the extent they want to offer be NPL capabilities to their consumers on any given day.
So I feel good about how we're positioned strategically there we're not in the business of taking sort of credit risk from consumers. So it's not a service we're providing on our own balance sheet, but we're providing the technology and the value added services or consumer or customers are looking for excuse me to be able to work with any being built provider they choose to and I'd also add to your last point.
There James if you look at our E comm omni numbers, which we reported again.
This morning does remain in line or ahead of the <unk>.
Markets as represented by the commodity numbers for these.
<unk> and <unk> about 30% roughly the revenue.
Our company. So we have been in line slash accelerating flash multiples of where the market's been growing we wouldn't be in those positions. If we didn't have a hyper competitive offerings.
UCP, which we've been talking about I think for four years plus now so we feel really good about where that business is obviously be NPL is a piece of that business that we're very pleased with the continued growth in our card not present business as measured by our.
Our performance relative to the markets.
That's awesome, thanks, Jeff Thanks, Kevin.
Thanks, Dan Thanks, Jamie.
Thank you. Our next question comes from the line of Jamie Friedman with Susquehanna. Please proceed with your question.
Hi.
Good results here Congratulations I wanted to also ask about issuer.
So on the commercial side.
That I think you said, 25% transaction growth is.
Is that.
Is that related to comps is that the marriage of the strategy.
Or is that a reflection of the types of accounts on file your boarding any color you might have a commercial would be helpful.
Yes, Jamie it's Jeff.
I think it's really related to just a fantastic business in the commercial card area. So as it relates to the comparison, we've seen sequential improvement throughout most of 2022 very similar what you saw.
From the from the card networks in their commercial card area as corporate cross border travel, which is really what commercial is for us.
For a bunch of large issuers really really recovers.
I'd say its 25% as an average we got a bunch of people on the corporate side, who are growing 50% north of that right. So well that's the aggregate up a lot of financial institution issuers, we have some issuers.
The center banks, who are growing at multiples of that number today. So that business remains very healthy I would also add that that is part of the AWS modernization efforts. So that applies not just the <unk> consumer but also to commercial part there's two elements that one is the technologies that we're developing in commercial card you may remember that city earlier.
This year City city.
Citigroup signed an eight year extension with us in a commercial for our business too.
The end of this decade, really and I think part of the confidence that large smart institutions like that have in us as the modernization efforts. We are undertaking the second thing I would say I would say as we announced this morning and also throughout the year is diversifying the revenue stream into Fintech. So I think we announced today in our <unk> businesses and the commercial part for us.
It's really a core part and in some cases entry entry way into <unk>, we announced today deal with ramp deals with extend as we think about expanding beyond traditional financial institutions, which has obviously been terrific for us.
Into Fintech and startups, I think BTB and commercial card is a really good place to do that and leveraging the relationship the unique relationship we have with AWS as <unk>.
Well as cutting edge technologies, we are building there.
It's showing in the results that we've been producing for last couple of quarters in and commercial card. So it's really not the comparison so much as it is ongoing strength in recovery.
And the corporate travel marketplace.
Okay. Thanks for that Jeff and there's a lot of good color on slide six on issuer.
So about that is there any reason why you are excluding <unk> I think you said in your prepared remarks, youre, excluding pace, if I heard that wrong I apologize, but what's the logic there.
Yes, it's Jeff again, Jamie just not in that number because we are ready to go to contract. Shortly so until it gets into the implementation queue. So thats like an implementation number Jamie which means we intend to board.
The relatively immediate term.
Cases ready to go to contract shortly the LOI was executed earlier this year once it gets slotted into the pipeline for conversion demo at it but if you add that number in Jamie Thank you well over $100 million.
And our pipeline accounts on file on a base business that whatever the number is $700 million et cetera that gives you some sense gaming as to the embedded growth opportunity carrying for the next couple of years in the issuer business. So I expect that to flow in in 'twenty, three but I don't expect that I didn't expect that consists of our expectations to have that in the third quarter because the contract is going to be <unk>.
Shortly.
Got it makes sense, so I'll drop back in the queue. Thank you.
Danny.
Thank you. Our next question comes from the line of John Davis with Raymond James. Please proceed with your question.
Hey, Good morning, guys just wanted to touch on on the margins here I think very consistent elevated or raising margin guidance every.
Quarter of this year, despite a lot of your peers kind of doing the opposite.
Is this pull forward or are you being a little bit more aggressive ahead of what could be a macro slowdown or these just opportunities in the business that youre seeing kind of top line better operating leverage I'm, just trying to understand whether or not this is kind of a pull forward from the expense base or if we can expect kind of similar to cycle guidance going forward.
In 'twenty three and beyond.
Yes, John it's Jeff its not a pull forward I mean as I said in response to a couple of questions ago, the fundamental driver of margin improvement.
Is terrific growth. So when you look at the things that are driving the growth of merchant as Cameron alluded to our software business is our higher margin businesses that are technology enabled as those grow faster than market rates, which we reported again. This morning that is going to drive outsized margin performance I think thats, what youre seeing in merchant, which at 50 plus percent margins.
The second time in a row this quarter on the issuer side, it's a very healthy growth profile and issuers I think Josh alluded to this it was 4% core constant currency in the second quarter now $4 two as Josh said, our expectations for north of that in the quarter. We're in right now based on the metrics through the third week of October . So when you have businesses that are probably.
80% plus incremental margins relative to a 40% average margin number growing at above market rates youre going to drive better margin.
Returns that's the fundamental thing the second thing I would say as you alluded to it's really pride ourselves in execution, we've got a long time here in.
Making or exceeding our margin target. So we are appropriately cautious.
Throughout the back half of this year heading into next year, but no our expectations pre.
<unk>.
Gain from normal margin enhancement heading into next year, I think evo and the decision disposition net found provide opportunities for accelerated margins when we get there, but I think for the time being it is really driven by 11% fundamental growth in merchant, 6% fundamental growth initially or if we keep doing that we're going to keep expanding markets.
Okay, Great and just as a follow up I think your comments in your prepared remarks or response to a question that you expect the mineral tree to grow 20 plus percent, maybe just spend a second to help us understand how mineral Sri will fit with the.
The <unk> assets, you said, you're more excited about <unk> business, but obviously, it's questions. We get a lot is just the <unk> strategy going forward. So maybe just help mineral tree, specifically fits with what Evo has and BW that'd be helpful.
Yes, John it's Kevin maybe I'll jump in and I'll ask Jeff to chime in with any other additional comments. So if you think about the <unk> strategy I'd break it down into its individual building blocks because ultimately end of day, what we're trying to achieve is sort of a fully integrated <unk> offering where we have software at the heart of <unk>.
Our ability to provide accounts payable accounts receivable solutions with money in money outflows.
<unk> largely mid market customers, and obviously enterprise customers to the extent, we want to scale into that market as well. So if you think about that as a sort of core underlying strategy. Obviously mineral tree is the base foundational asset to support our AP software automation capabilities. It will complement obviously.
Our Evo I should say will complement what we have with mineral tree by providing again the core foundation of our software capabilities.
With the integrations into the largest ERP providers in the marketplace. Today. So if you think about the <unk> strategy much like we've done on the merchant side. The foundation of that will really be software driven by both AP and AR software solutions and will wrap around that the ability to provide again money in and money out solutions too.
To our customers in the <unk> space, so their ability to accept payments obviously of course on the merchant acceptance side their ability to make payments and outflows on the AP side all of that in a fully integrated package that we can sell either as micro services, where any one of those solutions or is it fully integrated package again into that market. So.
I think the attractive part of Evo as we've talked about before there are many attractive elements one of the most attractive elements is the AOR automation software that they bring to global payments and how nicely again it complements the overall <unk> strategy that we're trying to build out here, yes, I would just add to what Cameron said. So this is in our prepared remarks. This morning, I want to highlight it so one of the law.
<unk> software deals that Neurocrine has ever recorded Grupo Bimbo was just done in October which is something we called out the quarter. We're in obviously Thats terrific news. We've also gotten very fertile ground in the cross selling of our virtual card business into our traditional financial institution base on the issuer side gave you a few examples in our prepared.
Remarks, too so Henry is absolutely right in terms of go to market there is tons of opportunities and low hanging fruit on the thesis issuing side leveraging that $50 million plus virtual card as we do every year in that $30 billion plus in volumes, we do already and virtual card. So we feel really good about where that business is headed and our focus is to continue to build momentum in <unk>.
To be heading into 'twenty, three and then obviously evo as Cameron alluded to brings us a whole another.
Universe of opportunity so very pleased with where we are I'm really excited about the trajectory into 'twenty three.
Okay I appreciate the color thanks, guys.
Thank you thanks, Sean.
Thank you. Our next question comes from the line of Bob Napoli with William Blair. Please proceed with your question.
Thank you good morning.
Overtime Ethan.
On the forefront I think in global payments.
The innovations in the payments industry as you look at the industry today globally, it's becoming more and more global I think a lot of the innovations what what areas of Fintech are you.
Excited about them and there's still a lot of D C going on I mean, maybe it slowed down somewhat.
But where is it geographically.
<unk> is a tried areas that made embedded payments or.
Thank Josh.
Integrated payments right.
But anyway, just any thoughts around.
Areas of innovation around Fintech that you're most excited about.
Yes, Bob I won't belabor that BBB topic, because I think we spent a lot of time on this call talking about our <unk> strategies and how we do stand alone and also with Evo, but just to start at the top I mean, I think <unk> is a big driver of our future growth expectations, we talked about last year about a year ago in our September 21, Investor day, the second thing I would.
I'd say is what we call commerce enablement.
Really on the merchant side of the house, which I know Cameron has touched on if you look at our recent announcements with.
With a bunch of stadiums Mercedes Benz is probably the most notable but as we alluded to in his script more are coming kind of imminently, probably before our next call what's really driving that Bob at the end of the day is the seamless combination of software digital mobile in the way that consumers want to be treated so we've talked about this.
In our Investor day, but pre pandemic.
People got paper tickets, maybe people were okay, you're getting a parking pass maybe people are right taking a stub at the parking lot in the stadium, maybe people are right touching something at the counter and starting their card is now table Stakes I think for all of that stuff to be done digitally maybe that was going to happen anyway, but as we said repeatedly and <unk>.
In 'twenty, one I think the pandemic, probably accelerated that migration by three to five years and that's what we're seeing so when we're going into Rfps now with stadiums and we won obviously a lot of that more will come but just take Mercedes Benz.
More recently as one example, all that stuff now is done digitally meaning your tickets on your phone.
You are parking pass is digital also on your phone when you order something you can do that from your phone to be delivered or are you seeing if you do it from a kiosk you can pick it up in <unk>.
Locker no wants to touch anything anymore. Another great example of that we call that commerce enablement, which means it's less about what the point of sale devices and more about the consumer experience than if you look at something like real estate, and I think Josh and I alluded to Zika today and its performance same thing. If you go back Bob kind of pre pandemic people would show up at the landlords office what they are.
Check if they had to repair ticket to fill out they fill it out in a paper handed in if they wanted their car they had.
And our park in taking the parking deck that I wanted to ask Stephanie and Martin and I want to touch those things its all down your phone when you're signing for new apartment. It's all done electronically when as a repair thing you do it on your phone or your iPad. When you want your car you kind of press the button on your phone. So when we think about commerce enablement and the opportunity to seamlessly combine what we built here.
As software as well as payments as well as a digital environment as well as wallets as well as E. Com Omni. We think there are only a couple of people in the world, who can really provide those services and I think the rate of our bookings growth or implementation provide.
Provides all the evidence you need to do you need to see as to how those undertakings are going.
And Bob it's Kevin the only thing I would add to that and I think you touched on this in your question is the ability to bring those capabilities to markets outside of the U S. I think is really differentiated for us. So all the innovation that Jeff was describing we're now in the process of bringing to markets outside of the U S. Our point of sale software solutions with the integrated analytics and customer intelligence suite.
Bringing obviously, our embedded finance offerings to markets outside of the U S. As well so part of what we like about our strategy now for quite some time is the fact that by owning these underlying software capabilities and solutions, we control the ability to export them to markets outside of the U S again to drive distinctive differentiation in these markets as they continue.
To evolve so I think that is a it's a unique sort of positioning for global payments and one that we're particularly excited about I'd also say, Bob just to circle back to complete the question on the issuer side. The cloud sales. So look when we announced the deal the unique partnership we have with AWS, two and a quarter kind of years ago.
Years ago now we are very excited about probably uncertain about the timelines and path of migration traditional financial institutions were not uncertain about that anymore.
Now that the world is reopened.
I've been in Europe , three times for work along with <unk> in the last few months and met with most of the top financial institutions in the United States in Canada, and most of Western Europe as I mentioned a minute ago. In addition to the $75 million accounting implementation.
For accounts on file I don't think we've ever had the bucket of opportunities that we have today on the issuer side in every one of those Rfps comes in and says we want 100% cloud kind of the first day. So I would just say in terms of other areas.
Focus on the issuing side beyond <unk> in both beyond what we've already described.
I think the cloud sales and in particular, I think the AWS cloud cells.
Thanks, So maybe that's just my follow up you talked about a number of takeaways.
A few takeaways is how much of that is driven by.
Cloud versus I mean pricing do you have a lot of scale. So you have high incremental margins, but what's driving.
It seems to be an acceleration and takeaways in issuer.
Yes, I think it's really Bob led by technology. So we really have a technology and product centric first view of the World. I also I think we have excellent people both on the sales and support side and we hear that consistently.
From our financial institution partners, so listen as it relates to pricing I think as with all things in life you have to be competitive. These are big smart sophisticated institutions that run rfps, but at the end of the day I think it's really driven by the product stack and the technologies back in I think.
Cloud are table Stakes now in that in that environment. It also dovetails very nicely with our go to market on the <unk> side, but it's also obviously with mineral trade very cloud centric.
So I think we got all the elements of successful offering and it's nice to see the investments we've made over a period of years play out in terms about wins and conversions.
Thank you.
Thanks, Bob on behalf of global payments.
Thanks for your interest in US this morning, and again happy Halloween everyone.
Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.