Q4 2022 Global Payments Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to global payments fourth quarter and full year 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 operator assistance during the call. Please press Star then zero and as a reminder, today's conference will be recorded.
At this time I would like to turn the call over to your host senior Vice President Investor Relations Winnie Smith. Please go ahead.
Good morning, and welcome to global payments fourth quarter, and full year 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 Dot com.
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 the proposed transaction between global opinions and Evo payments.
Statements are subject to risks uncertainties and other factors, including the impact of economic conditions on our future operations that could cause actual results to 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 also 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 COO, and John Whipple, Senior Executive Vice President and CFO .
Now I'll turn the call over to Jack.
Thanks Whitney.
We delivered strong results for the fourth quarter and calendar 2022, and what was an unprecedented year by nearly any measure with heightened worldwide macroeconomic uncertainties caused by persistent inflation dramatically rising interest rates significant foreign exchange volatility a war in Europe .
And lingering impacts from the pandemic early in the period.
Yet the consumer remained resilient throughout the year and we enabled a record over 64 billion transactions, culminating in a successful holiday season with multiple all time high peak days we.
We delivered record results for 2022.
While it's early in the new year internal metrics indicate more of the same.
Where we have seen any discernible change it is in some macro weakness in limited geographies like the United Kingdom and parts of Asia Pacific.
Having said that though.
Other items already are reflected in our fourth quarter results and our guidance assumes no meaningful change in operating environment for 2023.
We are pleased with our preliminary January results.
For the fourth quarter, our merchant business delivered 9% adjusted net revenue growth excluding dispositions.
At our issuer segment achieved 5% adjusted net revenue growth.
Each on a foreign exchange neutral basis.
Accordingly, our core issuer business again generated sequential financial and operating improvement.
System with our expectations and the best performance since our merger with Tcs in 2019.
For the full year, our performance was consistent with our September 2021 cycle guidance, despite multiple black Swan disruptions.
Merged in 2022.
Our merchant business delivered 13% adjusted net revenue growth, excluding dispositions and our issuer business generated 5% growth each on a constant currency basis for.
For calendar 2022, we produced 10% total adjusted net revenue growth again, excluding dispositions expanded margins by 200 basis points and generated 17% adjusted earnings per share growth on an FX neutral basis, all right line with our recycle guidance from 18 months ago. Despite all the.
Incremental challenges of the macroeconomic environment.
At our Investor Conference, we outlined our four pillar strategy and focus on a simpler model and more geared toward our corporate customers with enhanced growth and margin prospects.
Detailed our capital allocation priorities the balanced building the leading technology enabled software driven payments business worldwide with efficient return of capital.
And we highlighted our commitment to advancing our strategic partnerships with leading global technology companies investors and share gaining financial institutions to further expand our competitive moat.
We anticipate closing the acquisition of Evo payments no later than the end of this quarter.
With Evo, we reinforce our position as the preeminent payments technology company with extensive scale and unmatched global reach.
EBIT enhances our target addressable markets increases our leadership in integrated payments expands our presence in new and provides further scale in existing geographies. It augments, our b to B software and payments solutions.
We look forward to welcoming he was valued team members to the global payments family.
We also remain on track to close the divestiture of <unk> consumer portfolio by the end of the current quarter.
A key element of our strategic pillars.
We believe that this transaction will best position, that's been consumer business for future success.
I wish its team members the best of luck in the future.
Additionally, we have reached an agreement to sell our gaming solutions business to parcel on capital partners for $415 million.
This transaction much like the sale of <unk>.
Is consistent with our efforts to refine our portfolio towards our core corporate customers in a way from consumer centric businesses.
These three transactions further our strategic objectives simplify.
Our businesses and provide us with enhanced confidence in our growth and margin targets.
We expect each of them to close by the end of March providing us with core businesses from which to grow for many years to come.
Our unique ability to provide differentiated vertical market software payments and other technology solutions continues to resonate with customers. Our vertical market segment again delivered low double digit growth in the fourth quarter with our <unk> and school solutions businesses notable standouts.
We are delighted to announce today that both the Atlanta Hawks in the Atlanta Braves have chosen global payments to serve as their official commerce technology provider for state Farm Arena and Truest Park.
And the Braves ranking comprehensive rfps.
Select a partner for the future and they chose global payments because of our ability to deliver distinctive cloud based software and payment solutions to.
To create enhanced frictionless experiences.
That increase fan engagement drive loyalty provide cloud based data and improve operational efficiency.
We are proud to be the commerce technology partner for all of Georgia, as major professional sports and entertainment venues and our pipeline in this channel remains robust.
In addition to the Hawks on the Braves takeaways Xenial produced record revenue in the fourth quarter of 2022.
Recent wins also include a <unk> restaurants, Jack in the box and Panda Express.
What do these new customers all have in common such that they chose us and recent competitive takeaways.
In short consumer expectations for the sports and entertainment and <unk> channels are high and the pace of technological change in those markets plays uniquely to our competitive strengths.
Our technologies are winning everyday in the marketplace with more than 51000 restaurants in over 65 countries choosing our purpose built ecosystems to deliver positive experiences back to their customers.
Other standouts in our merchant business for the fourth quarter include our integrated and worldwide E Commerce, and Omnichannel businesses, which both again delivered mid teens growth in the period.
We are excited to combine the best of these businesses with Evo as our integration activities commenced in the near term.
In addition, we're now live with our acquiring relationship with Google across North America on the heels of the success of our initial launch in Asia Pacific in 2021.
Turning to our issuer business, we produce the best performance, we have experienced since the <unk> merger in 2019 in the fourth quarter of 2022.
We ended last year with a record 816 million traditional accounts on file an increase of $15 million sequentially driven by double digit account growth with industry, leading customers as our strategy of aligning with market share winners shows games.
Our commercial card business continued to perform well with transactions growing 20% in the fourth quarter as cross border and domestic corporate travel continues its recovery trajectory.
We lead in the issuer market with cutting edge technologies worldwide scale terrific customer service and a partnership mentality.
While the issuing business has always been.
We expect will always remain highly competitive those partners seeking to compete digitally nowhere they need to invest to be competitive in the marketplace.
Much like in the merchant business issuing.
Issuing businesses and growth challenged markets without the wherewithal to make cloud centric technology investments for the digital future will be increasingly challenged to compete.
Thankfully, that's not our target market.
We are very pleased to announce that <unk> signed a multiyear extension with bank of America.
One of our largest customers and relationship that spans consumer and commercial card portfolios in North America, and the United Kingdom.
We also extended our successful partnership with Deutsche Bank, our largest client in the Das region into the next decade as Tcs remains a partner of choice for scheme branded card portfolios across international brands, including Deutsche Bank and Postbank.
So good timing in light of our pending entry into the acquiring business in Germany through levo.
Other recent multi year extensions with long standing customers include PNC for its commercial business.
Our durable relationships with some of the most complex and sophisticated institutions globally speak to our competitiveness well into the remainder of this decade.
We currently have nine letters of intent with institutions worldwide, nearly all of which were achieved through a competitive RFP process.
This includes a recent LOI for new business with Tcs in Mexico, well timed in relation to Evo and a competitive takeaway conducted via RFP.
Another 12 of our recent LOI is including five competitive takeaways have gone to contract since the beginning of 2022, providing further future growth opportunities.
We recently entered the Swedish market through a contract we executed with enter card during the quarter.
Spanning both its consumer and commercial portfolios and we've got a contract with Scotia Chiller portfolio, which is being added to our agreement with Scotiabank a partnership that spans multiple markets across the Americas.
This marks our second win in Chile. Following a long term agreement, we reached with market leading retailers Cinco sued signed earlier this year.
Our issuer conversion pipeline stands at a record post merger of over 75 million accounts, providing further confidence of our growth trajectory well into the future.
We are pleased to report that we have now reached business agreement on a head of terms with <unk> Bank.
One of the largest issuing institutions across Europe .
Post implementation, we expect to become one of the largest debit technology providers in Europe .
We are the beneficiaries of technological innovation continued share shift in market share gains is just one example, while we've been providing market leading technologies for buy now pay later initiatives for decades, we continue to innovate and deliver installment products as BNP L demand grows.
This includes launching a successful b MPL program with one of our longstanding partners net west to aid customers with longer term purchases and special events.
This product was designed to enable payments to be easily tracked and incorporates the robust fraud protections provided by FCA regulated purchases.
Other issuer highlights include a new partnership with Mastercard, leveraging epica consumer clarity to improve the dispute resolution process and digital experiences for more than 25 million cardholders in the U S and the U K.
We also are collaborating with fin Tech software as a service platform Ombu.
To provide next generation capabilities for financial services customers across a number of strategic use cases.
Excluding credit cards, the MPL prepaid cards.
In a range of deposits and lending solutions.
Finally, we have now combined the T. Six commercial card business mineral tree and that's been B to b assets into a single unified BTB organization within the issuer solutions business as we focus on driving cross selling opportunities.
Across mineral tree and our core <unk> virtual card capabilities total spend grew more than 50% in 2022 over the prior year as we remain focused on bringing the industry's best virtual card capabilities to our <unk>.
Enabling BTB transactions mobile wallet provisioning and online travel capabilities.
Military had a terrific fourth quarter of 2022 with growth in excess of 30% and it is well positioned for gains heading into 2023.
Josh.
Thanks, Jeff we are pleased with our strong financial performance in the fourth quarter and for the full year, which highlights the durability of our business model.
With the results for the full year 2022, we delivered adjusted net revenue of 8.09 billion, an increase of 7% from the prior year on a constant currency basis, excluding the impact of dispositions adjusted net revenue increased 10% on a constant currency basis.
Adjusted operating margin for the full year improved 190 basis points to 43, 7%.
The net result was adjusted earnings per share of $9.32.
An increase of 17% on a constant currency basis compared to the full year 2021.
Which includes the impact of the exit of our Russia business during the second quarter.
These results were consistent with our guidance expectations and with our September 2021 cycle guidance from our Investor Conference. Despite all the challenges Jeff highlighted earlier.
Moving to the fourth quarter results, we delivered adjusted net revenue of 2.02 billion an increase of four 4% from the same period in the prior year on a constant currency basis.
Excluding the impact of dispositions adjusted net revenue increased 7% on a constant currency basis.
Adjusted operating margin for the quarter increased 240 basis points to 44, 4% the.
The net result was adjusted earnings per share of $2 42.
An increase of 17% on a constant currency basis compared to the same period in 2021.
Taking a closer look at performance by segment.
<unk> solutions achieved adjusted net revenue of $1 four 1 billion for the fourth quarter, reflecting constant currency growth of 9%. Excluding dispositions. This performance was led by the ongoing strength of our U S and technology enabled businesses we.
We delivered an adjusted operating margin of 48, 4% in the segment an increase of 20 basis points year on year as we continue to benefit from the underlying strength of our business mix.
We saw double digit growth across a number of our U S businesses in the quarter, including our integrated channel vertical markets portfolio, Pos solutions, and HCM and payroll businesses, while our worldwide E Commerce and Omnichannel businesses also delivered growth in the mid teens on a constant.
Currency basis this quarter.
This strength was partially offset by ongoing headwinds from adverse foreign currency exchange rates, along with macro softness in limited geographies like the U K and continued COVID-19 related restrictions and parts of Asia Pacific.
We are pleased with the fundamental performance of our issuer solutions business in the fourth quarter, notably core issuer grew 5% this quarter, excluding the impact of FX, which was an 80 basis point acceleration sequentially and positions us well heading into 2023.
As Jeff highlighted.
Traditional accounts on file increased by $15 million sequentially, driven primarily by strong account growth from our major consumer portfolio of customers Transat.
Transactions also grew high single digits compared to the fourth quarter of 2021 with strong contributions coming from commercial card transactions, which were up roughly 20% for the quarter.
Our total issuer business, including <unk> to be delivered $501 million and adjusted net revenue.
Also a 5% improvement on a constant currency basis for the same period in 2021.
Excluding the impact of our pay card business, which faced headwinds from both employment trends due to the macro environment and the lapping of pandemic subsidies issuer solutions grew five 3% on a constant currency basis.
Finally, we delivered adjusted operating margins of 48, 3% an increase of 560 basis points from the prior year fueled by our accelerated growth and focus on driving efficiencies in the business.
From a cash flow standpoint, we produced strong adjusted free cash flow for the quarter of $723 million and $2 3 billion for the year.
<unk> with our target to convert roughly a 100% of adjusted earnings into available cash excluding the impact of the expired Federal research and development tax credits.
We invested $152 million in capital expenditures during the quarter and $616 million for the year in line with our expectations. Further this quarter, we repurchased approximately seven $3 million of our shares for approximately $790 million and for the full year, we repurchased.
$23 3 million shares for $2 9 billion or approximately 8% of our shares outstanding.
Our balance sheet remains healthy and our leverage position was three two times on a net debt basis at quarter end.
We made further progress on our strategic priorities during the fourth quarter and remain on track to close our acquisition of Evo payments and the divestiture of <unk> consumer assets by the end of the quarter.
As Jeff mentioned, we also reached an agreement to sell our gaming business to Parthenon capital partners. We are pleased to have received HSR approval for this transaction and have submitted all other required regulatory filings.
We also expect to close the gaming solutions divestiture by the end of this quarter.
As a result, our business mix as of April one of this year will reflect our future state composition for three quarters of 2023 and beyond.
We have ample financial flexibility, including our 575 billion revolving credit facility, which is currently undrawn.
And following the completion of all of these transactions, we expect our net leverage to be approximately 375 times below our prior estimates.
We continue to expect to return to current leverage levels by year end 2023, while maintaining existing investment grade ratings.
We are pleased with how our business is positioned as we enter 2023, and the resulting financial outlook for the year.
We currently expect reported adjusted net revenue to range from $8 $5 75 billion to $8 $6 75 billion, reflecting growth of 6% to 7% over 2022, we are forecasting annual adjusted operating margin to expand by up to 120 basis points for <unk>.
<unk> thousand 23.
This is above our cycle guidance for margin expansion.
50 to 75 basis points annually, driven by benefits to our business mix from our ongoing shift towards technology enablement and the divestiture of <unk>, partially offset by the lower margin profile of Evo prior to full synergy realization.
To provide color at the segment level, we expect our merchant segment to report adjusted net revenue growth of roughly 15% to 16% for the full year.
This includes growth of approximately 9% to 10% excluding the impact of the acquisition of Evo payments and dispositions.
We expect the Evo Payment's acquisition too.
<unk> contributed approximately $475 million of adjusted net revenue in calendar 2023, which assumes the transaction closes at the end of the current quarter.
We expect more than 100 basis points of adjusted operating margin expansion from the existing global payments merchant business. Excluding dispositions in 2023 ahead of our cycle guidance.
This expansion will be more than offset beginning in the second quarter with the absorption of the lower margin profile of Evo payments.
We expect this impact will be mitigated by synergy realization as the year progresses.
As a result.
We're forecasting margin expansion in Q1.
Contraction in the middle of the year.
And then margin expansion in Q4 as synergies ramp for our merchant business.
The net result will be a modest decline in our total merchant business reported adjusted operating margin for the year.
Moving to issuer solutions, we expect to deliver adjusted net revenue growth in the 5% range, including <unk> B to B assets for the full year compared to 2022 as we benefit from our strongest conversion pipeline since the <unk> merger, specifically, we expect core issuer to grow roughly 5%.
And for mineral tree, and Thats been <unk> businesses to grow low double digits.
We anticipate adjusted operating margin for the issuer business to expand up to 60 basis points as we continue to benefit from operating leverage in the business as growth continues to accelerate.
Offset somewhat by faster growth in our lower margin <unk> businesses.
Finally, while the disposition of our consumer solutions business is naturally expected to be a headwind for the full year. This transaction enhances the overall growth and adjusted operating margin profile of the business going forward.
In terms of quarterly phasing there are several items to note.
<unk>.
While we expect foreign exchange rates to be roughly neutral for the full year, we anticipate the currency headwind to adjusted net revenue of up to 200 basis points in the first quarter and a headwind of up to 100 basis points in the second quarter.
We expect the timing of our Evo Payment's acquisition and the dispositions of net spend consumer and gaming to naturally impact quarterly growth rates during the year.
We anticipate the impact of the disposition of domestic consumer business to be offset for the most part by the addition of Evo, which we expect to close at the end of the first quarter.
Given the impacts of acquisitions and divestitures as well as foreign exchange rates on our expectations for 2023.
We have provided greater detail regarding our adjusted net revenue.
Adjusted operating margin.
And adjusted earnings per share assumptions for.
For the year and by quarter in our slides posted today on our website.
Moving to a couple of non operating items. We currently expect net interest expense to be roughly $540 million and for adjusted effective tax rate to be in the range of 19% to 19, 5% for the full year.
We also expect our capital expenditures to be around $630 million in 2023, consistent with our long term targets.
We anticipate adjusted free cash flow to again be in a comparable range of 100% of adjusted earnings per share in 2023 for modeling purposes. We have assumed excess cash is used to pay down indebtedness in 2023 until we return to our current leverage levels towards the end of the year with.
Minimal share repurchases until then.
Putting it all together, we expect adjusted earnings per share for the full year to be in the range of $10 25.
The $10 37.
Reflecting growth of 10%.
To 11% over 2022.
Excluding dispositions adjusted earnings per share growth would have been 15% to 16% for 2023.
Finally.
We anticipate and assume a stable worldwide macro backdrop throughout the calendar year in 2023, reflecting the current environment.
And with that.
I'll turn the call back over to Jeff.
Thanks, Josh.
Could not be more proud of all that we accomplished in 2022.
The incremental challenges we faced throughout the year. These achievements have given us increased confidence in accelerated growth trajectory, we outlined at our Investor Conference simply put we built a better more durable business model our expectations for 2023 are for a return to normalcy with businesses across our markets.
Delivering a typical financial and operating levels. The consumer remains resilient with anticipated spending patterns reflected in our recent results and our guidance.
Even in closing of the acquisition of Evo and the sales of <unk> DTC in gaming mean that three quarters of calendar 2023 will reflect results of the businesses that we intend to manage well into the future. We've completed the strategic pivot set forth in September 2021, and we are very much the better for it.
When.
Thanks, Jeff.
Before we begin our question and answer session I'd like to ask everyone to limit their questions to one with one follow up to accommodate everyone in the queue.
Thank you.
Operator, we will now go to questions.
Thank you.
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.
Guys, Thanks, and nice results.
But look just still a lot of moving parts. So Jeff. My first question would just be if you can help us understand when you look past.
All of these the gaming divestiture the Evo deal.
In the merchant business number one I guess, if you can give us a sense of what the some of the main moving parts were in the quarter again in terms of the one of the verticals that you're operating in and the software centric businesses. The tech enabled areas a little bit more granularity, but more importantly, when you look beyond this.
What is this growth profile of this business again, including Evo, including the divestiture of gaming and how do we think about merchant going forward for the next year or two.
Hey, Darrin, it's Jeff I'll start and ask Cameron to jump into so I think we described that over the last number of calls we're going to end up with in the aggregate. If you step back and merchant business at three quarters of the revenue of the company and an issuer and B to B business, that's 25% of the revenue.
The company that's reflected in our September 21 cycle guidance expectations, and if anything makes us feel better about achieving those those expectations that was covered in our press release and our prepared remarks. This morning, we're excluding dispositions on an FX neutral basis, we actually hit those targets. Despite all of the incremental challenges and uncertainties.
The markets that we're in I would also say that we expect all the transactions that we've announced previously in our gaming today. They close by end of this quarter.
So three quarters of 2023 as I said in my prepared remarks, I expect to reflect.
The businesses that we will have for many years in the future.
And the future of Tech Com I also touched on I'll temporary camera in a second but also touch on some of the pieces that have generated fantastic growth at 9% that we announced this morning and merchants at 13% for the year, 9% for the quarter, the 9% volume growth.
I announced in my prepared remarks, some of the pieces that added into that namely our integrated business, which again grew into the mid teens, our E comm and omni businesses, which again grew into the named mid teens meaningfully in excess of the visa Mastercard kind of reporting and of course meaningfully in excess of what Paypal announced last night in terms of their volumes.
And the like.
So I think those growth drivers that we've described historically at our last Investor Conference and part of the last four or five years of calls in our merchant business I expect to continue to drive the business forward Cameron one provides more detail on merchant, yes, Darrin I'm happy to maybe I'll start with the quarter and then I'll spend a little bit of time on the outlook as well so for the quarter as Jeff highlighted I think.
We're pretty pleased with the overall growth we saw in the business.
Obviously that was led by the U S business, which again produced double digit constant double digit growth in the quarter, Jeff highlighted a couple of I think the outstanding businesses from a performance perspective, but I would also note our point of sale ATM and payroll businesses also grew in the double digits, our vertical market business grew in the double digits. So our U S business overall was double digits for the.
Quarter, North America in total, including Canada was right at 10% exactly what we did in Q3. So again I think good strength across the U S and North American businesses, where we saw a little bit of headwind was from our Asian and European businesses, We do see some macro headwinds in the U K I think we talked about that in our prepared remarks.
Asia continues to be impacted by Covid related restrictions, although as we get early into 2023, we're starting to see those lift in January results, obviously reflect a lifting of those restrictions, which is encouraging to see heading into the year. So.
Our really our performance in Q4 was largely the same as Q3, but for international businesses. They were appointed tailwind in Q3 than they were a point of headwind in Q4, I think when you look at the business overall fundamentally 9% constant currency volume growth I think compares very favorably against what you saw from visa Mastercard Paypal Pfizer, So I think we feel.
Very good about the momentum in the underlying fundamental performance of the merchant business as we head into 2023.
We've talked about this morning, our highlights for 2023 from a growth perspective start with global payments sort of core business at 9% to 10% again relatively consistent with the cycle guidance that we provided for that business.
Reflecting a macro environment that we expect to be largely consistent with kind of what we've seen exiting 2022. So fundamentally I think we feel really good about how the business is performing and the component parts and the technology enabled aspects of the business that we expect to drive growth are continuing to do just that and we see that trend as I said just to finish off at that point.
From camera Dara as I said in the prepared remarks, we saw the same trends continued into January so we're pleased with the preliminary results.
That we have for January we're pleased with the metrics that we have into January and into February .
We really haven't seen as Cameron alluded to really haven't seen much of a change in our bank of America came out this morning with some comments about a healthy consumer. So we continue to be pleased with where we are.
That's great. That's great one quick follow up on the issuer side you. Obviously have you show the acceleration we hoped for the fourth quarter, which is great. I think you have 75 million accounts on file that are schedule to be able to come on over the course of the year and more maybe in 'twenty four with Chrysler if I remember correctly and so.
Just thinking about the guidance for issue, where it seems like it's roughly I think it was four five to five 5% of our stake in that.
Between all the tailwind could it have been a little higher is that conservative can you just touch on that thanks guys.
Thanks Darren.
We're really pleased where the issuer business is and it's really issuer and <unk> now so look I would tell you that in the back half of calendar 2022 for issuer in particular, we exceeded our expectations almost every month and certainly for the two quarters. So we got our fingers crossed that we'll do better than what than it will accelerate further as I mentioned a minute ago the met.
<unk> through January of preliminary results in January and metrics and issuance of February also look very healthy. So look we're hopeful we can do better than that I would say, though that the fourth quarter of 2002 itself represented 80 basis points of sequential acceleration in core issuer just from tier three garik down into Q4 sequentially.
In terms of revenue so look I'm hopeful we can all look back look back in 'twenty three.
I'd say that was a low bar, but youre talking about a business that.
I had its best performance in the month of December that add since the merger its best performance in the quarter that it had since the merger down will be delighted to talk to you in may about how good the performance is in the first quarter.
With that I'll now.
Continued I think we've got multiple tailwind in that business. We're really excited about where it is obviously part of our goal is to get BBB larger so as Josh said in his prepared remarks <unk> pay card added about 60 70 basis points to the growth rate, we'd obviously like to get that bigger and thats part of our plan to get to mid to high overtime single digits in that.
But that's reflected in our guide today up to five 5% growth. So I think we've got every.
Avenue of opportunity available to continue to build on the sequential acceleration that we saw in calendar 2022, and hopefully Jeremy can look back later in the year and laugh about how easy it was.
Alright, thats great to hear thanks, guys.
Thank you Sir.
Thank you. Our next question comes from the line of James Faucette with Morgan Stanley . Please proceed with your question.
Great. Thanks, I wanted to touch quickly on the expense side.
Expectations for margin expansion why don't you just give a little more detail there, particularly around like labor and just wondering if wage pressures have largely subsided at this point and is that part of what you're expected to help contribute to margin expansion.
Yes, Jamie this is Jeff I'll start and I'll ask Josh to jump into kind of at a macro level I'll give you a little bit more of the micro.
Detailed so look our job is to manage the business wage inflation rent inflation, that's part of the operating company.
Our job is not to blame that promises our job is to absorb that and move on.
I think that's what we've been able to do not just in the fourth quarter and the guide but.
Over the last.
Over the last number of years I, certainly would say just speaking for us that the employment market has changed I would say as you have seen that tech buy offs come from other folks around the.
Around the country and around the World Theres no doubt theres been a change in perspective, I wouldn't say that that's changed the wage inflation expectations.
People in our company or in the market.
More broadly valued team members our value team members and we need to be and we are market competitive the last time, I looked which admittedly James was probably a little bit ago, I think head count intact in our company was up 10% versus <unk> 19 in comp was up assembly or even a little bit or even a little bit more as I mentioned a minute ago, our job is to manage those numbers.
<unk> them and still move on which is kind of what we've done so.
Ongoing wage inflation is reflected in our expectations for margin expansion. This year. It was reflected in our actual results for margin expansion.
Last year, and obviously, you offset that with good growth and we offset it with leverage and synergies.
Anything else Josh wanted to be more specific on some of the margin stuff yeah, absolutely. So James as I said in my prepared remarks that we expect margins to expand approximately 120 basis points.
In 2023, which is so if you think about our cycle got a 50 to 75 basis points is ahead of our cycle guidance and we expect to see outsized margin expansion in Q1 of approximately 200 basis points, which is similar to the levels that we saw in Q4, and then we expect to see more normalized expansion of 100 basis points for the balance of.
The year and I would say that the primary driver of the benefits of this margin expansion is really a business mix shift toward technology enablement and the divestiture of <unk>, which we had talked about which we expect to be partially offset by the lower margin profile of Evo before we start to go ahead and realize synergies. So that's a little bit more color as it relates to <unk>.
Outlook for 2023.
Really appreciate that and then.
Yes.
Guys are obviously based on your outlook on kind of relatively stable macro environment.
Yes, I wouldn't be doing my job. So it didn't try to pressure test that a little bit if we look at some of the segments whether in your exposure whether it'd be the SMB E Commerce, we've heard kind of mixed.
Feedback recently for them from other companies in our space can you just give a little bit of insight into what youre seeing in SMB are you seeing points of weakness et cetera. Similarly on e-commerce.
Yeah, I'll start James and I'll ask Cameron to get more detail. So I would just say as we said in our prepared remarks look the fourth quarter and Cameron said this in certain of our markets United Kingdom to Asia Pacific They move from a tailwind to a headwind and I think a lot of that is a macroeconomic related related some of that obviously is coded as cameron alluded to you'll kind of coming.
In and out I mentioned before that January putting results are favorable and that we see those metrics kind of trending in continuing so that doesn't appear shifted from the fourth quarter, but the point I was trying to make in my prepared remarks, James is whatever macro disruption, we've kind of seen from higher rates FX COVID-19, whatever you want to call. It U K already in our results.
<unk> from the fourth quarter and certainly in our results from January and guide and guide our expectations. So I would say that's kind of already in the early in the cake.
So to speak as we think about kind of where we are camera only be a little bit more details on F&B mix, yes, Im happy to I mean, I think what we're seeing right now is relative stability across the SMB markets that we target in our vertical market businesses in our merchant business overall and the Best example, I can probably provide is just where we stand as it relates to booking and new sales trends kind of exiting 2022.
Heading into 2023, because I think that's a good barometer as to where we see the health of that overall market believe it or not we had our best sales month of the year and our U S merchant business in December and it was our second best all time, So I think from that perspective, we're seeing very good momentum across new sales, which I think is good obviously, a good canary in the coal mine for what we anticipate in 2020.
We had a record payroll sales month in December and we continue to see near 20% bookings growth in our vertical market businesses again, all targeted largely towards the SMB segments of the market here in the U S by large E com and omni continues to produce really good results as we highlighted on the call mid teens growth again, yet this quarter, we continue to benefit I think from digital.
<unk> trends, but obviously helped blend the physical and virtual world, but I think again, we're uniquely positioned to solve the complexity for our merchant customers and we see great adoption of those capabilities from our merchants in virtually all markets around the globe in which we're operating today. So look I think we're fairly confident as we head into 2023 to the guy.
That we provided today, obviously macro can evolve over the course of the year.
I don't think we are assuming perfect macro we didn't see perfect macro in Q4 as Jeff highlighted so I think some of that is obviously reflected in the guide today I think the guide doesn't assume it gets meaningfully worse, nor does it assume it gets meaningfully better from where we are and I think again, we feel confident in our ability to deliver on the results that we forecasted.
In our call earlier this morning.
Thanks, everybody.
Thanks, Jamie Thanks, Jamie.
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, So we're talking about 9% to 10% organic growth in merchant or in a half to five and a half in it.
Sure I just wanted to make sure I understand why.
Where you put together some of the.
The pieces here.
Each parent adjustment, there, but I don't see anything.
So we are talking about the Evo acquisition. So you show me to nine here.
I guess it is essentially the organic.
Okay.
You're still confused that we don't see that.
Adjustment for Evo.
Yes, Jason it's Jeff So I'll start so we saw our GAAP guide, which is the first row and then we've got our normal GAAP adjustments, which is the second round of the home adjustments to get adjusted net revenue. That's what we report the 6% to 7%. We said currency was roughly neutral the truth is that the 20 basis point headwind, we're just going to absorb that and didn't think calling that out and trying to back out 20 basis points.
Just on what we know is really worth anyone's time, our job is to manage those things. The reason we call. It net divestiture if thats net of Evo. So as I mentioned a minute ago <unk> and <unk> are roughly similar in size are going to close our expectation is at around the same day. So there is no timing discontinuity of those of those things.
Those offset more or less I would say theres, a little bit of leakage. So there might be something like 50, 60 basis points of leakage on the sale of <unk> consumer relative to the acquisition of Evo, but then remember we were forced to exit the Russia business.
April 29.
Jason of last year, or so we have overlap.
There for a period.
And then we obviously also announced today from a revenue point this out gaming, which is earnings neutral, but obviously revenue dilutive. So the net effect of that is minus one seven if you had a lot together the acquisition of Evo to sales Netbank consumer as a forced divestiture of Russia. The sale of gaming does net to minus one 7%. So if you add that currency yet back then.
Effect, which is why it says net there on slide 10, you get to the eight to nine which to your point, let me call. It core here, that's our view of what the core business is really doing if you want to take that to earnings and Josh actually put this in is quite in press release.
If you back out the divestiture because it's not our cycle guidance that include divestitures. If you back that out core earnings growth would have been 15% to 16% that's not what we're guiding to you because that's not what we're going to report, but the eight to nine correlates to the 15% to 16, then if you say well what about <unk> run rate of expense synergies, because we only get one or two points of accretion this year.
Because we only owned it for nine to 12 months of the year, but if you look at our guide from August 1st is another 3% of accretion to EPS at full run rate incremental III and full run rate phase in a full expense synergies, which is from August 1st last year, you've put the idea and we're actually at 2017 to 20 earnings guide the way, we think about it Jason is eight to nine is.
The run rate of what the quarter is doing we're not guiding to that because we're going to report we're going to report, which is what pages 789 years and what our press release that is we don't want any confusion, but for those who are interested in more what's really going on what's the core revenue growth rate of the company where they are it is it's eight to nine what's the core earnings growth of the company, it's 15 or 16 and with full phase in of EBIT synergies at <unk>.
2017 to 20, so right on top again, and Joshua <unk> said its $1 20 on the margin so right on top again of our cycle guidance. Despite all the uncertainties of the world.
Okay.
And then just as a follow up.
The primary use of the balance sheet. This year is to pay down debt.
Potentially see.
Do deals if something particularly interesting.
And then just a quick housekeeping thing can you just clarify how much interest income benefit you expect this year from the seller financing.
Thanks Scott.
Yeah, Yeah, absolutely so.
Our primary focus this year is as we go ahead and pay down debt and so we're currently three.
During the quarter times Levered today.
With the once we close Evo will be about 375 times levered.
And then what we will focus on paying down debt to the balance for the balance of the year and we expect to get back to our current leverage levels at the end of the year. If you think about interest income its approximately $75 million for the year.
Thanks.
Thank you.
Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.
Hi, guys good morning, and congrats on the solid results Jeff.
Jeff wanted to ask about yields you know a lot of chatter on on looking at the merchant side. If you look at your volumes.
They look very favorably versus peers on yields you guys are about flat others are showing large increases can you just give some comments on how you think about yields and yields going forward in the merchant business.
Yes, Bryan its Cameron, maybe I'll jump in and I'll ask Jeff to add any other additional comments he would like to so look I would just say our philosophy around pricing really hasn't changed very much. We do want to ensure we're getting paid fairly and appropriately for the level of service and capabilities, we're providing to our customers and our pricing strategies RSA are generated.
Lined with this.
We're not really positioning ourselves to be the low cost provider in the market I think were price competitive, but obviously, we strive to differentiate ourselves based on our capabilities and the service that we deliver to the customers that we have the benefit of observing in the marketplace. So like everybody else as we talked about earlier on this call I mean, we have inflationary pressures that we have to absorb.
Round wage good services et cetera, and all.
Obviously, we reflected that in pricing plans kind of accordingly, but I would say to your point our volume growth continues to track relatively consistently with our overall revenue growth in our spreads have remained relatively consistent I would say over time, we continue to expect to see spreads overall increase as we continue to pivot towards more technology.
<unk> in the business as we continue to scale our point of sale business, our vertical market businesses continue to grow E com and omni continues to be a tailwind for the growth all of those businesses generally have higher spreads because we are selling more technology, obviously than sort of traditional merchant acquiring in general So I think theres a lot of tailwind around.
Our spreads as we move forward in time, but we've been fairly I.
I would say sanguine as it relates to our pricing strategies as we've been able to generate good revenue growth in the business on the back of really solid fundamental volume growth across the globe.
Got it great and just on <unk>.
Some of the renewals the larger renewals.
<unk>.
I guess the worry always is on a renewal basis, you'll you'll have to take.
Significant kind of discounts to renew those businesses in a competitive environment, Jeff Jeff for Cameron, obviously could you just talk a little bit about the renewal cycle, because it sounded like with Bofa and others, you signed quite a bit of business just thinking about pricing there. Thanks.
Yeah. Thanks, Brian I think what you said is accurate so.
Bofa is one of our largest customers. They just renewed for a multiyear period that renewal started January one this year and it's in our guidance right. So our 5% to midpoint four five to five and a half you wanted to page reflects all that so we're growing.
And I would say generally growing right through this thing. So I think that really has and that really hasnt changed what has changed in the issuer business very somebody Cameron described I think in response to Jason's Jason's comments, we're leading with technology right. So if it's not mostly RP as we get now are cloud centric and I think if you don't have a cloud centric cloud native solution that.
Don't think all the pricing and the world is not really going to move.
The needle there as you think about what we announced with Bofa Deutsche Bank Deutsche opposed to what you place that we can take away in Europe double the size of the double the size of our business in Germany, well time, with Evo, which obviously that closings eminent but theyre in Germany on the acquiring side.
And we of course, we announced I think thesis is already in Mexico that probably our biggest new customer in Mexico, an LOI that was it.
<unk> takeaway from one of our.
One of our one of our peers.
We're very excited about that too those are rfps as are all competitive competitive takeaways. So you have to be competitive on price, but I would say leading with technology in the issuer business has become table Stakes. So if you're not cloud and cloud centric global partner like we do in AWS I think it's very difficult to compete so I think to answer your question at the end of the day, Brian is bofa.
P&C and all these other things the Citi renewal from a year ago on the commercial side.
The recent win.
In Mexico, and everything else, we're seeing is in the fact that we accelerated 80 basis points sequentially.
In the fourth quarter versus the third and our expectation is for more growth and more acceleration in 2023, and the way our math works initiatives the way it works forever in the merchant business to give.
And X percent discount over a five year term, you've pretty much with volume growth surpassed that within the first 18 months of doing it in the first place and that's been our experience and merchant predates me Saturday only go back 30 years. So maybe it's a I can't speak for the <unk>.
In the eighties that predates me in merchant and certainly that's been my experience on the on the issuer side can't really won't comment on merchant no. The only thing I was going to add to that Brian as it relates to renewals and issue or it's a little bit like the merchant business and that we're not trying to be all things to all people, we target very specific segments of the market and we're really targeting winners in the market those issuers, who are growing their acquiring more portfolios.
Hey, good organic growth from our card deployment perspective in their business. Today. So you can afford to give to some degree of those discounts on renewals because youre going to grow through them over a short period of time to Jeff's point. So it speaks a little bit around how we position the issuer business in the marketplace the target market for us from a growth perspective, and again the organizations, we like to partner.
With those that are winning in the marketplace and give us the opportunity to grow through any sort of discount we may have to provide a renewal overtime.
It sounds like the Braves the Hawks, the Falcons stopped the United stuff, we announced today with say, it's like those are all rfps rfps rfps with the existing providers those rfps with new Fintech entrance.
Putting those two some of those guys that know how to run rfps at the NFL the NBA.
MLS right et cetera, So I would say, what we're leading with this technology and Thats held that you don't care about the quality of Tac and the quality of the surface. Likewise support as Cameron said, you've probably to look elsewhere.
Got it very helpful. Thanks, guys.
Thanks, Brian Thanks, Brian .
Thank you. Our next question comes from the line of Ross with VW. Please proceed with your question.
Hi, Thanks for taking my question.
My first question is just on the macro and the Evo business I guess could you talk a little bit about the defensiveness of the book of business that you are acquiring with me email and to the extent macro industrial down how a deal.
How would you look up on the accretion change that if at all.
So, let's say, it's Cameron I'll start and I'll ask Jeff to jump in I think what we like about the EBIT portfolio. Overall is there exposure to faster growth markets around the globe. So obviously I think evo part of the strategy that they've pursued and its one that is consistent with us is to have those exposures to geographies with strong secular growth trends.
Where we see good favorable macro environment as it relates to card adoption and digitization of payments over time, notwithstanding what the underlying macro environment in those markets may be so I think we feel obviously that our guide for Evo today that we provided today, which is around $475 million for 2023 for three quarters of the year, which run rates to about.
636, 35, something like that obviously I think it reflects a.
Pretty consistent view of the macro environment globally that we have here at global payments, but obviously it does to some degree of benefit from the fact that they are in secular growth markets that obviously creates a tailwind and good opportunities for us to continue to grow over longer periods of time. So yes, you may see it would've been a macro softness in some of these markets, but again the strong underlying.
Secular growth trends more than offset that and I think as we leave us well positioned to see good growth in <unk> business year over year apples with apples.
For 2023, as well as kind of the years years beyond yes, I mean does that point absolutely Josh in your prepared remarks that $4 34 to 35 number which is like 6% or whatever the math is for the full year reflects double digit growth over at Evo.
Purion period, so that's that number ready and on your earnings question. What we showed today was consistent with what we said in August versus really no change that 1% to 2% of accretion for nine to 12 months of the year for Evo. If you fully phased in as I said sort of response I think to James' question that your fully phased in.
The synergies from Evo, you would get to 4% to 5%, which basically offsets completely then thats been BDC consumer disposition and Thats, what we guided to in August 1st at 22 lawsuits that nothing's changed.
Thank you very much and just my quick follow up as an issue I know you've got a lot of questions on that already but just high level. If you think about what your medium term guidance cycle guide for that business was sort of in the mid single digits and it's been trending towards the low end is now for a couple of years can you help us think or was it the commercial portfolio that's still waiting.
On it or something beyond that and this discipline at the more sustainable growth rate going forward.
Yes.
I'll take that box and Josh can jump in so look our cycle guidance that business has been I think thesis. It was two 4% ex the good news is in our guide we got to five and a half right. Today. So we have four five to five and a half obviously <unk> and the <unk> five is the midpoint of $4. Six also I noticed the four five to five five relative to the four to six historical cycle guide So I think.
That's good news I think the difference of that business is really twofold. One as I mentioned in response to Brian's question I think the cloud Centricity and the advent of new technology, but just look we wouldn't have won the deal in Mexico. I don't think we would have one call I know one case, a bank and the other thing is we described if we werent cloud centric and cloud native in App business, which is obviously we've been working.
Since our announcement in August of 2020 with with AWS. So the first thing I think it's changed is.
What people are buying which is really technology and look prices are always an issue, but I think as I mentioned a minute ago in Canada too I think we're always price competitive that's kind of point number one point number two obviously is the next would be to be assets that we made the pivot on with mineral tree in September 2021, and now with elements at net spend.
And I think what we said in the back half of last year Vasu is that should over time and now I'm talking about.
Hi.
<unk> right, that's kind of new.
A new item that takes you from the <unk> X and it's going to take you hired into FX as <unk> becomes a bigger point as I think Josh said in his prepared remarks today, excluding pay card, which is more macro sensitive it had.
Covid subsidies in it for employment, if you back that out <unk> added 60 bps to the core so at the core is growing five I think we just said it would grow five the fourth quarter, but as a part of of course growing five and Youre, adding 60 bps net now youre close to section as those mix is changing as we burn through the pipeline youre going to get to that mid to mid to high which obviously is an enhancement.
The debate over the traditional four to six so the high end of our guide right now is five and a half thats higher than five we hope obviously that continues over over time, but the business is in a very healthy place as I said in my prepared remarks, we had record after record during the peak in particular in our issuer business and.
And I don't see any signs currently.
Our expectation changing.
Great. Thank you for the color that was very helpful.
Thank you ladies and gentlemen, our last question. This morning will come from the line of will Nance with Goldman Sachs. Please proceed with your question.
Hey, guys I appreciate you taking the question Jeff I just wanted to ask a follow up on the earlier question on kind of the run rate growth. As you guys are exiting in the year I mean, I'm kind of looking at slide nine at the 7% to 8% growth.
On a segment basis kind of 9% to 10, Standalone GBM and our Standalone merchant and mid single digits on issuer I guess, just how do you kind of bridge what the sum product of those two growth rates gets you towards sort of a low double digit cycle guide on top line and kind of what needs to improve from here to kind of get to those numbers.
Yes, so what I would say is our cycle got let's just start with that we'll just work in reverse so our cycle guide of low double digits includes M&A and it for example on the revenue side as well as the expense side capital deployment has always been a part and what we've said historically will even before 'twenty, one probably go back to <unk>.
Is that M&A for example, it can add up to a couple of hundred basis points of revenue in any given period and capital deployment generally yes, two to three points kind of earnings growth.
It has historically for our company, whether it's buybacks or M&A.
Or anything else. So thats the overall generality than if you go to your question on pages nine and 10. So what we're trying to get at is we only have three quarters of Evo.
In 2023, obviously, we have a disposition.
In 2023, our cycle Guy doesn't assume are selling 10% of the revenue of the company, which is what's in the dispositions. So we tried to back that out to give you a better sense of the.
At the eight to nine and then obviously the exit period also has a currency assumption as I mentioned, a minute ago and theres a bit of a currency headwind.
Over the year. So I think to answer your question is as we accelerate.
Merger integration with <unk>, we expect to see revenue acceleration or a $1 25, well is just an expense number so as we integrate evo towards the end of the year as we look at revenue opportunities when it closes beyond expense opportunities. If you add those one to two points, which is back to our cycle guide over the last number of cycles.
<unk> exiting the year at eight to nine on page nine obviously, its a bit of a currency thing there are seven to eight and one to two points.
Just on even though just uneven alone and you're going to get to double digits of revenue I mentioned a minute ago in response.
To Jason's question that on earnings ex dispositions. This year were 15% to 16, <unk> and <unk> were 17% to 19. So I think we're kind of at the earnings number with a full year effect of Evo exit disposition.
I think we're within shouting distance on the on the revenue side and then lastly, I would say, we kind of alluded to this in the Investor conference the shifting business mix on the issuer business toward more <unk> I just mentioned and then again in response to <unk> question Art.
Our four five to five 5% five in the Middle I think is right in line with like I said, historically, but obviously, a five and a half is toward the high end of six so there is still like I said before to essentially here. It is five and a half and obviously it was a lower number in 'twenty, one and for most of 2002 <unk>. It here at five as that mix continues to shift we see another 50 to 60 basis points.
From Bvd as the wins continue to roll in from things like Queso Bank et cetera that business should accelerate now youre on top of <unk>, which is our cycle guide with M&A in it. So I think we will exiting this year, we're kind of right on track.
To be where we would like to be from a cycle kind of bought it I thought that that point of view I'd also say as we said both in our press release and our prepared remarks today, we hit the side for calendar 'twenty, two let's not lose sight of that constant currency neutral and excess position. So I think we're right.
We want to be despite the uncertainties in the current macro environment.
Got it I appreciate all the detail there. So I guess, that's M&A mix shift towards maybe and maybe some core acceleration in the issuer business. That's that's very helpful. I. Appreciate all the details in the slide deck by the way, it's a very clear very.
A very quick follow up on.
On the gaming business could you just provide any details on the contribution of that business to 2022 results. Just so we have a clean number there.
Yes, I can give you a little bit of color there well, it's Cameron the gaming business, that's about $100 million a year or so.
And I think we sold that business at around kind of an eight times multiple level 758 times. We can give you a sense of sort of EBITDA contribution that it would deliver so as we look at 2023 will have one quarter of the business. So about $25 million of revenue you can see that highlighted on page nine of our disclosures today and then we'll lose about 75%.
1 million plus of revenue kind of relative to what we had in 2022 from that business.
Got it very helpful and I appreciate you taking the questions guys.
Yes, Thanks, Bill Thanks Bill.
While they have a global payments. Thank you very much for joining us. This morning have a great day.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.