Q2 2023 Global Payments Inc Earnings Call

Speaker 1: Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions and answers.

Speaker 1: Good morning and welcome to Global Payments second quarter 2023 conference call. Our earnings release and the slides that accompany this call can be found on the investor relations area of

Speaker 1: 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.

Speaker 1: These 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.

Speaker 1: Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10K and subsequent filings.

Speaker 1: 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.

Speaker 1: We will also be referring to several non-GAAP financial measures which we believe are more reflective of our ongoing performance.

Speaker 1: 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 8K filed this morning and our supplemental material available on the investor relations section of our website.

Speaker 1: Joining me on the call are Cameron Brady, President and CEO , and Josh Whipple, Senior Executive Vice President and CFO .

Speaker 1: Now, I'll turn the call over to Cameron.

Speaker 2: Thanks, Lenny, and good morning, everyone. It is a privilege to be addressing you today for the first time as Global Payment's CEO . I have been in this role for roughly two months and am delighted with how my tenure has begun. The transition has been seamless, as expected.

Speaker 2: Our organization and team members continue to execute at a very high level as evidenced by the outstanding second quarter results we reported this morning.

Speaker 2: Our performance for the quarter was ahead of our expectations despite what has been an uncertain macroeconomic environment globally, driven by the effectiveness of our strategy and ongoing relentless focus on execution.

Speaker 2: On a consolidated basis, we reported 7% adjusted net revenue growth while expanding adjusted operating margins 100 basis points and delivering adjusted earnings per share growth of 11% for the quarter.

Speaker 2: This includes a roughly 400 basis point headwind to adjusted earnings per share growth from the divestiture of net spends consumer assets.

Speaker 2: Focusing on our merchant solutions business, we again delivered strong organic growth in the second quarter, led by ongoing momentum in our technology enabled businesses.

Speaker 2: Our software-centric strategy with an overlay of leading e-comm omni capabilities in value-added commerce enablement solutions continues to drive our performance.

Speaker 2: our ability to deliver these solutions across a diverse and attractive set of geographic markets worldwide further differentiates our business.

Speaker 2: Software sits at the heart of our merchant solutions business and is supported by a three-legged go-to-market integrated payment strategy, expanding our partner ISV, vertical market software and point-of-sale software businesses.

Speaker 2: Collectively, these businesses comprise approximately 40% of our merchant solutions adjusted net revenue and are contributing a meaningful share of the growth in the business.

Speaker 2: In our partner at ISV channel, or integrated business as we often refer to it, we continue to deliver consistent teams growth and again achieve record sales this quarter, surpassing last quarter's strong performance.

Speaker 2: We signed 33% more integrated merchants this period than in the second quarter of 2022.

Speaker 2: We have a long history of success in our partner and ISV business and continue to gain share despite this becoming a more crowded market over the last several years.

Speaker 2: against that backdrop. It is important to highlight why we continue to grow and win in this space.

Speaker 2: First, we have developed a more streamlined and simplified offering for partners with the options they desire, allowing us to meet both them and their merchants where and how they want to be met.

Speaker 2: The ISV landscape has changed significantly in the last five years.

Speaker 2: Software providers desire to bring payments closer to their business and require options on the depth of integration, a clear understanding of the responsibility those depths carry with them, and the benefits of a feature-risk solution.

Speaker 2: Our simple SDKs and APIs allow us to deliver on these expectations for our ISB partners.

Speaker 2: Second, we offer three distinctive integrated payments models to our partners.

allowing us to meet the unique demands of an ISV customized for its specific vertical market and merchant base.

This includes a more traditional direct integrated model where we provide the most comprehensive suite of products, services, and support for both the ISB and its customers.

We also offer a full payment facilitation or payback model where the partners have access to our leading payment technologies, although much of the operating complexity, including compliance and regulatory requirements reside with the ISB.

Additionally, we recently launched our new Progressive Payment Facilitation, or PROFAC, model, a hybrid option which provides many of the benefits of payment facilitation while minimizing the heavy burden that comes as a payback.

Our PROFAC model is unique to Global Payments serving as another example of our leadership in Integrated Payments.

We have seen great interest in this proposition and have a strong pipeline of partners seeking to board in the coming quarters.

Our full spectrum of integrated solutions allows us to customize our offerings and provide different levels of support based on the specific needs of our partners.

Third, across all these models, we offer a higher level of service than our peers, including for our Payback and Pro-Fac customers.

And we also provide our partners with a breadth of commerce enablement and value-added solutions to sell into their merchant base.

which meaningfully increases the revenue opportunity and accelerates growth.

This includes human capital management software, payroll, loyalty, tailored marketing solutions, the NPL, and call center support amongst others. Again, all customized to meet the unique needs of the department.

Overall, our technology leadership, unrivaled distribution, tailored operating models, comprehensive suite of products and capabilities, and best-in-class service and support is why we win.

We meet the specific needs of our partners, which differentiates us in the marketplace, and is allowing us to achieve sustainable high rates of growth at attractive margins.

Turning to our vertical markets business, our approach is largely consistent with how we think about the ISV partner channel with the exception being that we control the entirety of the technology stack and monetize it accordingly. This business again delivered double digit growth this quarter led by strength in our Zego, Venial and School Solutions businesses.

Zeego is seeing great momentum in the student housing vertical and recently expanded its relationships with Zion as well as another large player in this space.

ZeeGo is also partnering with our higher education business, TouchNet, to help us capture a greater portion of the student payments value chain through our campus management and OneCard solutions.

Focusing on Xenial, we announced our partnership with the Atlanta Hawks earlier this year and are now officially live with our Xenial Cloud point of sale solutions at State Farm Arena. Xenial also recently signed an agreement with Sodexo, one of the leading food service management companies globally, to be its preferred point of sale and kiosk partner. With this win, Xenial is now the partner of choice for the three...

School District partnership with Oklahoma City, expanding its partnership with Baltimore County, and extending a large existing relationship with Chicago Public Schools for several more years.

Additionally, ACTIV recently signed the City of Toronto. It's the largest ever win in the community vertical and one of 14 new partnerships achieved in this space during the quarter.

In vertical markets where the primary mode of competition is at the point of sale, we go to market through one ecosystem of owned POS software solutions with two distinct operating platforms, one for restaurants and one for retail.

These cloud-based software solutions operate on a single hardware environment, custom designed, built, and branded with a modern look and feel.

Our POS business grew 20 plus percent again this quarter as we continue to see strong demand for our solutions and benefit from releases of product enhancements including email marketing, customer engagement, and our latest mobile first online ordering platform.

And we expect this momentum to continue on the heels of the launch of our next generation TLS platform later this year.

Our latest solution provides best-in-class offerings coupled with the full local support and service capabilities to the LIDAR merchant customers in these verticals.

Importantly, our software platforms are vertically fluid, which unlike more horizontal solutions in the market, offers feature-risk capabilities geared towards the specific requirements of businesses we serve with capabilities that integrate seamlessly.

Our software platforms are vertically fluid, which unlike more horizontal solutions in the market, offers feature-risk capabilities geared towards the specific requirements of businesses we serve with capabilities that integrate seamlessly. More to come on this.

Our technology-enabled strategy is further enhanced by our differentiated e-commerce and omni-channel capabilities, which we overlay across all of our businesses, channels, verticals, and geographies.

Today, roughly 30% of the volume in our business is e-commerce, well above the overall percentage of retail sales tied to e-commerce. We again saw a mid-teens growth in e-commerce related adjusted net revenues globally in the second quarter.

We continue to benefit from our ability to seamlessly blend physical and virtual worlds in more markets than our peers, supporting the strong growth trends we have seen in e-commerce across our businesses.

To that end, we are pleased to have recently signed a new partnership with EasyPark Group, a global provider of digital parking services across the US, Canada, and the UK.

Our exposure to some of the most attractive secular growth markets globally remains an important part of our strategy, both in terms of contributing to our overall rates of growth and providing us the global footprint and scale we need to support complex multinational corporations like EZBar.

Our faster growth markets again contributed to our strong performance in the quarter as we saw double digit growth in Spain, Central Europe and Asia Pacific.

In APEC specifically, we signed new merger relationships with several large retailers across multiple geographies, including AS Watson Group, Footlocker, and Automar PGA.

Ebo aligns well with our overarching strategy and his performance was consistent with our expectations for the quarter.

We remain excited about the synergy opportunities we see as a combined company, both revenue and expense, and remain very much on track to deliver at least $125 million of run rate synergies from the transaction. Turning to issuer, we achieve mid-single digit growth in the quarter consistent with our expectations and longer term targets.

Transaction growth remains strong throughout the quarter led by our commercial business, highlighting ongoing recovery trends and cross-border corporate travel.

Traditional accounts on file increase by approximately $10 million sequentially as we benefit from the strong growth with our existing large financial institution clients and the ongoing execution of our conversion pipeline.

As yet another example of our successful strategy of aligning with market share winners, Deutsche Bank, our largest client in the dock region, recently announced new issuing partnership with Lufanda for its Miles & Moore MasterCard, one of the leading credit card portfolios in Germany and Europe .

We are also delighted to assign multi-year extensions with 118118 money in the UK and another large long-standing financial institution partner here in the US this quarter.

We currently have eight LOIs with institutions worldwide, nearly all of which were achieved through a competitive RFP process, and several will go direct to cloud via our collaboration with AWS, our preferred issuer technology solutions partner. Our relationship with many of the most complex and sophisticated institutions globally speaks to our competitors.

providing further confidence in our growth trajectory well into the future.

And the future for our business remains very bright as we execute on our multi-year strategy to modernize our technology platforms in cloud-native environments.

positioning us to provide market leading technologies at scale through more distinctive and defensible distribution channels in more markets than we ever have previously.

Our unique collaboration with AWS is tracking well.

We now have our first client in production with our cloud native next-gen analytic solution and have a number of additional customers preparing to join our cloud journey by leveraging capabilities we are launching together with AWS throughout the year. Moving to B2B, we continue to drive strong growth with both corporate and financial institutions.

as we leverage our capabilities across three focus segments within the overarching B2B market. Software-driven workflow automation, money in and money out fund flows.

and employer solutions.

Starting with software, our AP and AR workflow automation solutions that include integrations with the leading ERP environments continue to see great momentum.

Mineral Tree achieved its best bookings quarter since the acquisition, underpinning the strong growth we are seeing in our primary mid-market segment, as businesses focus their attention on automating their AEP processes.

We also remain excited about the opportunity we now have to combine Mineral Tree and Evo software to create a single APAR solution.

with rich data and analytics that will provide a unique value proposition to mid-market customers.

As for B2B funds flows, as one of the largest virtual car issuers in the world, we have significant scale in all of the payment rails and capabilities necessary to support customers in making money out payments in their businesses.

Virtual card use continues to expand contributing to the nearly 20% growth achieved in our commercial business.

Over the last 12 months, we issued nearly 80 million virtual cards, enabling roughly $47 billion in spend.

Additionally, we are seeing strong growth on the money inside with our B2D payment acceptance solutions at more and more of this bend shifts towards digital channels.

Our B2B bookings and merchant solutions have more than doubled since the fourth quarter of 2022, and we expect this momentum to continue as we further align EVO with our existing capabilities and pursue our B2B software-centric go-to-market strategy.

Finally, we provide employer solutions including our pay card, earned wage access and expense management offerings and issuer solutions and our human capital management and payroll solutions in our merchant business.

This board, our Payrock card business, signed new partnerships with Creative Mobile Technologies, a large taxi company with a significant presence in the top metropolitan cities in the U.S., and with Arcara Solutions, a staffing solutions provider in the senior living vertical.

Our EWA business achieved the new partnerships with Bravo Foods, a large QSR franchisee in the United States.

Our software driven human capital management and payroll solutions business delivered high teens adjusted net revenue growth and mid teens new sales growth for the second quarter. We are pursuing a very similar strategy in B2B as we have in merchant solutions over the past several years.

We lead with software to differentiate our capabilities and provide the vertical fluency clients demand.

We integrate our payment solutions into our software to monetize payment flows. And we deliver value added services that enrich our relationships with our clients, driving further efficiencies in their businesses while increasing our average revenue per customer.

With the breadth of capabilities we have and a focused technology enabled strategy, we could not be better positioned to capture share and accelerate growth in B2B over the long term.

With that, I will turn the call over to Josh. Thanks Cameron. We are pleased with our outstanding financial performance in the second quarter which exceeded our expectations despite what continues to be an uncertain macroeconomic environment. Specifically, we delivered adjusted net revenue of $2.2 billion, an increase of 7% from the same period in the prior year. Excluding the impact of dispositions, adjusted net revenue increased 15%. Adjusted operating margin for the quarter increased 100 basis points to 44.8%, highlighting strong and consistent execution across our businesses.

revenue of $1.68 billion for the second quarter. A 17% improvement from the prior year, or over 9% growth, excluding the impact of evil and dispositions.

We remain on track to return to a leverage level consistent with our longer-term targets in the low threes by the end of 2023 while maintaining existing investment grade ratings. As we highlighted last quarter, in January we established a $2 billion commercial paper program, which is supported by a revolving credit agreement and allows us to further optimize our capital structure and reduce our overall cost of borrowing.

Moving to margins, we continue to forecast annual adjusted operating margin to expand by up to 120 basis points for 2023. As a reminder, this is above our cycle guidance for margin expansion of 50 to 75 basis points annually driven by benefits to our business mix from our ongoing shift towards technology enablement and the divestiture of net spend personally offset by the lower margin profile of EVO prior to full synergy realization.

Specifically, we are forecasting margin contraction in the third quarter that will be followed by slight margin expansion in the fourth quarter as synergies wrap. Regarding the EVO integration, we have made substantial progress including the successful completion of our first 100-day plan and remain enthusiastic about the synergy opportunities available. Specifically, we are on track to realize the approximately $35 million in cost synergies this year that we outlined previously.

Driven primarily by the elimination of public company costs, facility rationalization, and the harmonization of duplicative vendor contracts. Further, I am pleased to report that we have also executable plans to achieve the run rate expense synergy target.

of at least $125 million within two years that we committed to at the time of the announcement. As always, we remain focused on sizing expense synergy expectations with an eye towards ensuring that we maintain momentum in the combined business and that it's well positioned to continue to grow and expand in the future.

Additionally, as we discussed last quarter, although revenue synergies have a longer tail, we continue to believe we can add at least a point or two of growth on top of Evo's existing run rate revenue base, or approximately 10 million to $15 million of revenue synergies from the business.

Moving to issue resolutions, we continue to expect to deliver adjusted net revenue growth in the five to six percent range for the full year compared to 2022. This outlook reflects core issue or growth of roughly five percent while we expect mineral creating and that spends B2B businesses to grow low double digits.

We anticipate adjusted operating margin for the issuer business to expand by up to 60 basis points consistent with our prior outlook as we benefit from the natural operating leverage in the business.

According to a couple of non-operating items, we expect net interest expense to be roughly $550 million and for our adjusted effective tax rate to be in the range of 19% to 19.5% consistent with our prior guidance.

For modeling purposes, we continue to assume excess cash is used to pay down indebtedness in the second half of 2023.

Putting it all together, we now expect adjusted earnings per share for the full year.

to be in the range of $10.35 to $10.44, with a growth of 11% to 12% over 2022.

Excluding dispositions, adjusted earnings for share growth is expected to be 16% to 17% for 2023.

Our second quarter results represent roughly a 3 cent adjusted earnings per share beat relative to our internal forecast.

Arrays guidance for calendar 2023. Essentially, roles to be at the low end of the guidance range for the year given the ongoing uncertainties in the macroeconomic environment globally.

Similar to what you've heard from others, in July we saw stability in our performance compared to our second quarter results.

While our base case outlook today resumes spending trends and a macroeconomic backdrop relatively consistent with the current environment.

Our guidance range accommodates the potential for a moderation in spending and overall macroeconomic environment over the remainder of the year.

accommodates the potential for a moderation in spending and overall macroeconomic environment over the remainder of the year. And with that,

I'll turn the call back over to Cameron. Thanks, Josh. I've been a global payment for nearly a decade and I'm more enthusiastic now than I ever have been about the opportunities in front of us.

We have a compelling technology-enabled strategy, a world-class team, great partners and clients, and a global presence with diverse distribution capabilities.

As I step into the CEO role, I am highly focused on several priorities for our business and customers.

First, is continuing to pursue the key pillars of the strategy we set forth in detail at our investor conference in September 2021, while sharpening our focus on the most attractive opportunities we see in these areas and amplifying our investment on the most impactful of these initiatives. Here are just some samples of what we have seen on the charts at the

This is the right strategy for our business and one that positions us well for continued growth and value creation.

Second, is continuing to make it as easy as possible to do business with global payments while providing more commerce enablement solutions that deepen our relationships with our customers.

This starts with our ongoing focus on meeting our clients and customers, how and where they want to be met with innovative and distinctive solutions that integrate seamlessly.

And of course, we need to continue to couple this with exceptional service to ensure that we delight our customers with every interaction.

Weveraging our scale that many competitors simply cannot match.

Third is to maintain our relentless focus on execution, which has been one of the hallmarks of global payments and a key component of our ability to produce consistent results through market cycles.

We have good competitors in our markets and I strongly believe the consistency of execution separates one from another.

Global payments will set the standard for execution in our space. Last and certainly not least, I'm focused on ensuring global payments culture is second to none. Our culture dictates how we accomplish our goals and achieve results as an organization.

It is a connected tissue that makes the organization operate effectively. Having a world-class culture will further differentiate us from our competitors, drive value creation, and benefit all of our constituents.

I'm delighted to be taking over Global Payments now that we have simplified our business and clarified our strategy going forward. With a sharpened focus, relentless execution and disciplined investment, I am confident our exceptional team will drive sustainable growth and performance.

We look forward to sharing more as we continue on our journey. The future is indeed very bright at global payments. Winnie? Thanks, Cameron. 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. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue.

You may press star 2 if you would 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 is coming from the line of James Fawcett with Morgan Stanley . Please proceed with your question.

Great, thank you very much and thanks for all the details today. I just wanted to first understand a little bit the change in commentary or the way you're describing your outlook around guides and in particular the macro environment.

Are you assuming any incremental impact? Are you seeing anything there that causes you to be a little bit more cautious? Or can you just talk through kind of why you decided to temper at least your your macro commentary? Yeah, James, it's Cameron. Good morning. I would say a couple things. And I think some of this was covered in Josh's prepared remarks. First and foremost, July trends are tracking very consistent with July .

case sitting here today. I think the point we're trying to emphasize and some of this quite frankly is based on commentary we heard on the heels of Q1 is the range of outcomes that we're reflecting in our guide will accommodate at the lower end some softening of the macro environment and some softening of consumer spend should we see that.

relatively stable kind of macro backdrop in the in the back half of the year consistent with what we saw in Q2 and what we're what we obviously saw in July as well.

And I would just add to that, James, I think if you think back to our quarterly color that we gave you on our February earnings call, you know, I'd say that we're still on track, as Cameron mentions, and we're still, you know, trending from a cadence perspective to go ahead and deliver those second half estimates in Q3 and Q4, which, if you remember, was, you know, revenue growth and the...

8 to 9 percent range margin expansion 100 basis points and EPS growth of 9 to 10 percent which gets you to kind of the full year guide of revenue growth of 7 to 8 percent and then margin expansion of up to 120 basis points and EPS growth of 11 to 12 percent. Yep, no thanks for that pretty compelling algorithm.

to reflect more of the value that they're delivering. Where do you see your opportunities around pricing and the value you're providing, and how should we think about that on a go-forward basis, especially if macro remains relatively stable? Yeah, James, this is Cameron. I think my perspective on that is really, we've tried to be consistent over a relatively long period of time.

in pricing our solutions and services in a way that we think reflects the value that we're delivering to our customers. So our philosophy around pricing I think has been by and large more consistent over a longer period of time perhaps than relative to some of our peers. I think what we are seeing certainly in the market environment over the last, you know, certainly six to...

as well. Great. Thank you very much for that, Cameron. Thanks, James. Thank you. Our next question is coming from the line of Ramsey Ellisall with Barclays. Please proceed with your question.

Hi, thank you for taking my question this morning. Could you comment on the drivers of the really healthy margin expansion issue? I think you mentioned a couple of the efficiencies, but could you drill a little deeper in terms of how you're getting that great margin expansion to never show up.

Ramsey, you were breaking up a little bit, but I think your question relates to is there a margin expansion and what the drivers are associated with that. That's exactly right.

I'll let Josh sort of chime in on that. Yeah, look, you know, from, you know, Ramsey, if you think back, you know, Q1 we saw in Q2, we saw a really great margin expansion in the business, our issuer business. We saw 300 base points of margin expansion here in Q2. And we saw a really great margin expansion here in Q1.

That's really driven from our shift to more technology enablement and really strong expense management. And I think for the rest of the year, we would expect the growth to moderate as we expect margins to be in the high 46% range that we reported in Q2 as the comparison gets tougher and we left a strong expense that we realized in the second half of 2020.

So, the topics are kind of resilient and seems to be macros is going to be business. It's questionary versus not discretionary make, because that's trending things. Well, the size of emergency, you're going to go out and find out what's on it. And what's on it? You're describing your virtual markets business. You're talking about science and kind of work with your customer. As you call those out, I'm just curious in terms of how you think about the size of the customer. You're servicing over time as well that the discretionary versus industry.

pick up anything that you're saying. Thank you. We'll move on to our next question, which is coming from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Good morning guys, nice results here. I just want to start on a merchant. Can you tell us what organic merchant volume growth was in the second quarter? And then just comment on your organic revenue growth expectations in merchant for Q3 and Q4. Do you think it'll be closer to nine again or could it tick up to 10?

Thank you. Yeah, Jason, good morning, it's Cameron. So organic volume growth in the second quarter was roughly 9%. So EVO contributed roughly 11%. They contributed roughly 10, 10 and 1,5% on top line revenue. They contributed roughly 11 on volume, just an aggregate to the metrics for the quarter.

So organic was around nine. That includes a little bit of a headwind from fuel. I think you've heard other people talk about that, but in our portfolio it's a portion of our volume. It's not a dramatic portion of the volume, but we did see a little bit of a headwind from that. So again, consistent with what I generally like to see with this volume and organic volume growth and organic revenue growth, generally tracking it.

look and I have a lot of confidence in our ability to deliver on that nine to ten. We were north of nine this quarter to be very specific we're around nine and a quarter.

I think we have a few initiatives kind of in the back half of the year that give me confidence that, you know, certainly nine is the low end of what our expectation would be around the merchant business, and there may be some potential for it to drift up closer to the ten, but we're sticking with the nine to ten for the time being. Okay, understood. I know you spent some time on

B2B as well. And just as we think about further de-levering here and the opportunity to re-engage with M&A again, moving into 2024, do you expect B2B to be on that high priority list as it relates to potential M&A activity? I mean, it seems like you've been seeing...

good success with mineral tree. I think you said there were record bookings there in the quarter. So we just like to hear your forward-looking thoughts on that topic.

Yeah, thanks, Jason. I would say absolutely B2B is in the mix as it relates to how we think about M&A in the future. And generally, just philosophically, obviously I want to use M&A as a lever to support all the pillars of our strategy. I think our primary focus is finding opportunities that we think really augment what it is we're trying to accomplish across the different...

more refined, more clear cut approach to how we want to pursue the B2B opportunities. I provided some commentary today in my prepared remarks about how we segment the B2B market, where we expect to play in B2B, and where we wanna focus our efforts and attention in what is a large, diverse, and quite frankly, B2B means different things to different people. So I thought.

that volume growth rate 9% organic or even pro forma or I'm sorry reported 20% you know clearly the 9% is better than what we're seeing across the industry right now so I mean Cameron maybe just re-highlight what the strengths are you're seeing that's

You know providing that stability I think you're about the only company we've seen stable volume trends at quarter versus last quarter on a year basis. So what do you think is the driving force of that relative to the industry?

and it sounds like you're seeing sustainability into July . So maybe just reiterate the points of strength you're seeing that's driving that versus the market overall.

Yeah, Darren, it's Cameron. I'll go ahead and start. Look, I think the biggest strength we have in our portfolio is diversity of vertical market exposure. So I think that has benefited us pretty meaningfully as we think about how we're positioned from a volume perspective and why we've seen sort of the strength and performance that we've seen for the business overall. That's the first one I would make.

The second point is we did de-sell a little bit relative to Q1, not dramatic and probably not as much as we saw with the networks and others. And I think part of the reason for that is we're not that exposed to travel. So I think the travel comps are difficult comps and I think having to grow over those for others has been a bit of a headwind.

headwind although travel remains strong the comps are tough and obviously I think that's putting a little bit of pressure on growth rates as well for those guys. So I think it's a little bit of mix it's diversity of distribution and I think it's ongoing consistent execution in our portfolios you know again that gives me confidence that not only you know obviously that we produce strong results for the quarter I think we're well poised to continue to deliver on.

you provided during the beginning of the call was pretty helpful and obviously I think it was intentional just to get the message out about the differentiator it is. When you think about the strategy on partners versus own software going forward and you know, assuming you had an incremental dollar to spend on something, what would you prefer or is it really a balanced approach?

And I guess it sounds like the ISV channel is sustainable and doing well. So I'm curious to hear if you have a strategic preference.

Yeah, I really think it depends on the vertical, Darren, to be honest.

somewhat ambivalent quite frankly as to whether we partner or whether we own. I think it largely boils down to the fundamentals of the vertical market that we're trying to target and which model do we think best positions us for success and growth and expansion in that market and you know what are the opportunities available to us to either own or partner. So it really is something that needs to be focused you know vertical by...

growth engine for this business and I think continues to have a lot of runway. And you're right, my focus on integrated today was very intentional because I think it's important to recognize why we're different than other players in the market, why we've seen sustainable high rates of growth in that business, and why we're confident we're going to continue to see sustainable high rates of growth in that business over a long period of time.

and to try to draw a clear line of distinction between how we go about running our integrated business and how others in the market may be choosing to operate there. So I'm very bullish long-term, the partner model. As I said at the outset, I'm somewhat ambivalent as to whether we partner our own in a vertical market. Again, it's largely going to go down to what opportunities are available and

And what do we think gives us the best path to growth and success in the verticals that we're targeting? Yeah, that's really helpful. Thanks guys.

Thanks Erin. Thank you. Our next question is coming from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.

Thanks. Good morning. So Cameron, I just wanted to not to belabor this point, but you know, staying on merchant for a moment, you called out that, you know, I think you said 40% of merchants revenues are now you know, embedded from this kind of software component, which obviously includes biotic services. So my question is a little bit different than what damage is asking, which is

Shouldn't you be able to decouple your revenue growth over time from volume growth to the extent that that continues to grow faster? If that's the case, like how do you think about the stability of the business going forward? Does it seem as though you get better visibility and not worse?

Yeah, I think it's a fair question. I do think there will be some slight decoupling over time, but remember, we're not selling software just for the sake of selling software. We're selling software in payments and monetizing payment flows as we're selling software.

So that's why I think notwithstanding the heavy emphasis on software, which is the right strategy for our business, there is obviously an element of that that's going to drive volume growth as we execute on the software strategy. So software takes three flavors as I mentioned before, but it's rare that we're selling software into an environment now where we're not selling and monetizing the software.

but by and large as we're selling software it's going to be linked to volume and you should see relatively consistent trends as it relates to volume growth and software and obviously revenue growth in the business over a long period of time. But I do think it gives us to your point better visibility, better predictability around the business and certainly gives me a lot of confidence in the sustainability of the performance that we can achieve over a long period of time.

compliance and an underwriting risk associated with this model. It sounded like it was some sort of hybrid, so if you wouldn't mind just flushing that out a little bit, that would be great. Thank you.

Yeah, sure, it's a good question and it's a model that we're really proud of and we're seeing a lot of traction on in the market. So, you know, not to be too skewed, think about PROFAC as all the gain and none of the pain for the ISV partner. They get all the benefits that they're looking for as it relates to a payment facilitation model as a result of the ISV.

spend back capabilities and virtual accounts that kind of come with the payment facilitation model but they have none of the pain of everything that comes along with being a payment company. So think about that in the context of risk management and software to support risk management activities. It's compliance and software to support AML, PCI.

audits, those types of activities in the business. We're doing the underwriting and onboarding teams and we're utilizing our software to provide that for these customers. Then they don't have to manage their own chargeback and cash accounts to support chargebacks and liabilities, etc. And then of course reporting, they don't have to invest in that capability, they're buying that essentially from us leveraging our capabilities.

company and that model as I said is really resonating because it's really the best of both worlds. Most payment facilitators don't set out to become payment companies because they really desire to build all of the infrastructure required to be a payment company. They want more control, they want a different onboarding experience and they want different backend capabilities from a settlement capability, etc.

So I think it's our model that really allows them to achieve that on economic terms that are advantageous for us, excuse me, and also beneficial for them. So it's something that we think is really going to continue to grow in popularity in the market.

That's great. I suspect that is going to be very popular. Thank you.

Thank you. Our next question is coming from the line of Tenjin Huang with JP Morgan. Please proceed with your question.

Thanks so much. Good morning to all of you. Just also on the integrated side, I like, Cameron, how you went through that, as Darren said. So the record sales, can you just comment on what verticals specifically are selling well? And then across the three models that you discussed, you mentioned ambivalence between partner and own.

How about across those three models from a pricing and margin standpoint? Any call outs there? Thanks.

Yeah, both good questions to engine. On the vertical side, I would say it's kind of across the board. I think we're seeing good strength probably skewed right now towards non-discretionary spend verticals versus discretionary spend. But we're seeing just great engagement with our partners. We're seeing great leaf flow into the business.

conversion with something up 33% kind of year-to-year in the second quarter. So very strong, just overall performance. I would say slightly skewed and much of our inner big greater business is skewed towards consumer non-description areas. So I think that's where we're seeing obviously the strength in the overall portfolio as well. As relates to the different partner models that we operate, again, we're probably

right model for the ISV partner in terms of how they want to go to market and what it is they're trying to accomplish is payment facilitation. There's plenty of times when the right model for a partner really is direct integration, depending on again what it is trying to accomplish, direct is they're going to market strategies et cetera and as I mentioned before.

We think the PROFAC model where we rolled out this past quarter sort of blends that in a way that worked for some merchants, but not all. So I think we've tried to structure each of those models where we're somewhat economically neutral in terms of the overall net result for us given the level of...

that part of the business. Then certainly in a direct integration model, we're doing a lot more work for the partner, and the economics need to reflect that so we can maintain obviously the margins in the business that we're trying to achieve. So as long as it's structured the right way with the right partner, as I said before, we're somewhat ambivalent. We want to make sure that the model itself is appropriate.

to accomplish the objectives for the ISV partner. Yeah, I'm sure you're thoughtful about it and you have all your bases covered, so thank you.

the objective for the ISV partner. Yeah, I'm sure you're thoughtful about it and you have all your bases covered, so thank you. Thanks, David.

Thank you. Our next question is coming from Will Nance with Goldman Sachs. Please proceed with your question. Hey guys, I appreciate you taking the question. I figured I'd pile on and also ask a question on the integrated business. I was wondering if you could maybe talk about the trends in the mix between the payback versus the traditional integrated model that you talked about. I think one of the longer term concerns from investors is that the yield delta is large.

when you think about the new product, you know, where do you expect the pricing on the PROFACT model to land relative to those two models?

Yeah, it's a good question. I would say in our portfolio we see generally consistent growth across direct, integrated and pay-back over the last couple of years, say. And I for one don't necessarily subscribe to the theory that long-term all sort of ISVs are going to become pay-backs. Quite frankly, we have a number of ISVs that are going to be going up in the next few years.

either our pro-fact model or even in some cases back to a just direct integrated model abandoning sort of the pay-back approach entirely. So my view long term is we'll have a relatively balanced portfolio kind of across those three channels. As I said in response to Tengen's question, there's plenty of times when payment facilitation is the right model. I'm not trying to suggest that.

different sort of operating models that we have within our integrated channel. I think the PROFAC model, as I mentioned before, has a lot of merit and is resonating very nicely in the market because as I said before, it delivers the best of both worlds. And I think the economics around that are going to be somewhat in between and also the cost that we have to support the model is somewhat in between what we have for a direct integrated partner and what we have for a payback partner.

relationships at margins that are still attractive for our business. So I have no qualms in continuing to grow the payback side of the business, but I think you'll see good growth across ProFAC and direct integration as well, you know, over a longer period of time.

Got it, that's helpful. And then maybe another number that really stuck out to me was the 20% growth in POS this quarter. I think that's another area where that investors commonly cite as being very competitive and maybe being at risk from vertical specific ISBs. Where is the growth kind of coming from? What do you think is driving that 20% and maybe how has that trended over the past couple of years?

Yeah, well, let me, let me start by saying we are a vertical specific I.S.V. in our POS business. So we have a retail platform and we have a restaurant platform that we go to market with, with vertical fluency, with all the software you need to run a restaurant or run a retail environment at the point of sale. So that is our mode of competition in that space. We're not a hard,

Restaurant in retail. So I think that's really why we're seeing the growth that we're seeing in that business. We have cloud based software that is vertically fluant. I think our platforms are a modern their fleet. They're well designed. We bring all the featureure functionality that restaurants and smaller retail environments need to run their operations and, as I mentioned in my prepared remar, we're llingout.

sale businesses, we have multiple distribution channels now selling our point-of-sale platforms, we're seeing good growth, you know, 20 plus percent. That number has been pretty consistent over probably the last eight quarters as it relates to the growth we're able to achieve in that business. I'll readily admit it's off a relatively small base, you know, that business today is a couple hundred million dollar revenue business.

But we do think it will continue to be a catalyst for growth in the overall merchant business over a longer period of time.

Got it. Yeah, no, it looks like very strong, friends. I appreciate you taking the questions today.

it yeah no looks like very strong friends appreciate you taking the questions today absolutely thank you

Thank you. Our final question will come from the line of Brian Kean with Deutsche Bank. Please proceed with your question.

Hi guys, good morning and congratulations on the solid results.

Want to ask about Thank you, Brian . Thank you. Yeah, no problem. I want to ask about the evil acquisition that closed for its first full quarter. And it's up to a good start, but can you hear comments?

are suggesting you're even more excited about it today. Just maybe now that you've had the company under your belt for several months, just can you talk about what might be exciting you even more than you anticipated? Yeah, maybe I'll start, Brian , and I'll ask Josh to chime in with his perspectives as well. I am more excited about the opportunity, largely because as we've been able to spend more time with

grants action. I think I'm just much more bullish the opportunity to be able to bring global payments capabilities to those markets, to drive incremental growth in those businesses, to leverage some of the things that Evo has done well in those markets, but really amplify that and accelerate what they're doing with better product, better capability.

better solutions. A few examples of that are really ecom. I think by and large Evo's ecom capabilities were not you know market leading by any stretch of imagination. I think bringing our ecom solutions into these markets, particularly markets like Poland and Greece is going to be you know a very strong sort of catalyst for growth in those individual markets.

Point of sale opportunities are immense within their portfolio. You know, Evo really provided by and large just payment solutions to merchants. They didn't have a lot of other product and capabilities that they could bring to bear on the markets. So bringing more point of sale software into these markets is an attractive opportunity for growth.

bringing some of our data and analytic capabilities and some of our other loyalty platforms into these markets I think are our excellent opportunities to augment growth. So I think by and large the opportunity to bring global payment product and capability to EBO markets is greater than I envisioned at the time that we announced the transaction going on a year ago today.

I would say secondly the embedded opportunity around some of the multinational customers that Evo has been able to win in discrete markets and the ability to expand relationships with them in other markets I think is a nice day of win for growth for us as well. And I'm particularly excited about the ability to tap into some of those opportunities.

again leveraging our UCP platform to deliver ubiquitous processing and acquiring capabilities to some of these larger customers and more markets obviously than Evo has been able to do so, you know historically. And then lastly I think as we dug in further into the B2B opportunities and the software that Evo brings to bear.

side of the B2B offering. By again, a winding that with capabilities that we have inside a global payments. I think streamlining the go-to-market around B2B, leading with those offer solutions and obviously monetizing payments as a part of that sale. I think again, end of day, there's probably greater opportunities to grow and scale the B2B side of the business than I anticipated when we announced the transaction. And you're done with all the contractions.

That's really on the revenue side. Maybe I'll let Josh chime in and just give his perspectives on the expense side as well. Josh

We expect to go ahead and realize about, you know, 35 million and it's been in cost synergies for in 2023. And I would say that we have, you know, very defined executable plans in place to go ahead and achieve the 125 that we set up the outset, you know, of the transaction. And I would say by the end of 2023, we'll probably have.

50% to two thirds of those synergies executed on the annualized basis. So it's going to be more delighted with regard to the overall integration and what we've achieved in the first 100 days and speaks volumes to the team that we have here at Global Payments. So trending right in line with where we would expect it to be at this point in time. Yeah, I would just conclude by saying it's still early in the transaction. My back time was really early.

we're sticking with our results, our expectations for now, but I've got a lot of confidence in our team and our ability to outperform over a longer period.

That's great. And just as a quick follow-up on the on the PROFAC model, is there an advantage or competitive advantage that GPN has versus the market or is this a kind of where the markets moving and everybody will compete in the same in this PROFAC model? Yeah, look I'm certain other people are going to look to provide a similar type of...

that we can bring to bear across the operating and compliance and regulatory management and software side of integrations that I think we can bring to that equation. So I think certainly the scale that we bring and the capability we bring is clearly one differentiating factor.

in that business, you know, while certainly others in the marketplace, you know, have not been able to achieve quite those same levels ever longer period of time. Thanks for taking the question.

while certainly others in the marketplace have not been able to achieve quite those same levels over a longer period of time. Thanks for taking the questions. Thanks Brian .

With that, that concludes our few two earnings call this morning. I want to take a moment to thank all of you for joining us. We appreciate your interesting global payments. And we look forward to following up with you after the call. Have a great day, everyone. Ladies and gentlemen, this was concludes today's teleconference and webcast. We thank you for your participation, and you may disconnect your lines at this time.