Global Payments Inc (GPN) — Q2 2021 Earnings Call Transcript

Good morning and welcome to Global Payments' Second Quarter 2021 conference call. 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 expected operating and financial results. These statements are subject to risks, uncertainties, and other factors, including the impact of COVID-19 and economic conditions on our future operations, that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Some comments made refer to non-GAAP financial measures, such as adjusted net revenue, adjusted operating margin, and adjusted earnings per share, which we believe are more reflective of our ongoing performance. For a full reconciliation of these and other non-GAAP financial measures to the most comparable GAAP measures in accordance with SEC regulations, please see our press release furnished as an exhibit to our 8-K filed this morning. And our trended financial highlights, both of which are available in the Investor Relations area of our website at www.globalpayments.com. Joining me on the call are Jeff Sloan, CEO, Cameron Bready, President and COO, and Paul Todd, Senior Executive Vice President and CFO. Now, I'll turn the call over to Jeff.

Thanks, Winnie. We delivered a terrific second quarter with each of adjusted net revenue, adjusted operating margin, and adjusted earnings per share outperforming our targets. We are most pleased by the compounded rates of growth that we realized in the quarter and are now forecasting for the full year compared to pre-pandemic 2019 levels. While we've not clawed back all of the impact of COVID-19 relative to our pre-pandemic expectations, we have made substantial progress and are far down that path. As we have throughout the pandemic, we continue to expand our competitive moat through leading strategic partnerships. First, we are excited to have agreed with our partners at Caixa Bank to acquire Bankia's payments businesses in Spain. Specifically, we will enhance our position in one of the most attractive acquiring markets in Europe, with the addition of Bankia's merchant business, consisting of roughly 100,000 customers in the region. This pending acquisition further enhances our distinctive distribution and will allow us to delight Bankia's customers with our market-leading technologies, providing us with significant cross-selling opportunities, and deepening our presence with one of the leading institutions in Europe. This agreement follows our purchase of an additional 29% stake in our commercial joint venture last October which increased Global Payments' ownership to 80%. Additionally, our MoneyToPay joint venture has agreed to purchase Bankia's prepaid business as we continue to execute on our strategy to expand and diversify our NetSpend business into international markets. We expect both of these transactions to close in the fourth quarter. Second, we are delighted to announce that we have entered into a new collaboration with Amazon Web Services, AWS, for unique distribution and cutting-edge technologies at NetSpend to substantially increase our market share and accelerate our strategy across our three pillars of digitization, internationalization, and B2B expansion. Much as we have done with our issuer business, we plan to leverage the AWS partner network, and dedicated partner development specialists to bring NetSpend's B2C and B2B digital payment solutions, including program management, to reward our base of Neovacs FinTech start-ups and other e-commerce players, as well as to new geographies. This partnership will also provide an industry-leading cloud-based processing platform for NetSpend's customers to access cutting-edge technologies with greater speed-to-market, security, and flexibility. We are thrilled to deepen our go-to-market collaboration with one of the world's largest technology companies to continue our disruption of these markets. Third, we are pleased to have closed our acquisition of Zego in June, further capitalizing on the convergence of software and payments in one of the largest and most attractive vertical markets worldwide. As I highlighted last quarter, real estate is the quintessence of the type of market that we seek: sizable, global in scope, fragmented, and ripe for further software, digital commerce, and payments penetration. COVID-19 has accelerated the underlying trends that make this $6.5 billion target addressable market so attractive as we continue to expand our software-driven footprint. It is my great pleasure to welcome Zego team members to Global Payments. In addition to these strategic accomplishments, we produced yet another outstanding quarter of results. Since we began running the Company in 2013, our main focus has been on two areas: enabling diverse, distinctive, and defensible distribution, and developing market-leading technologies. We could not be more pleased with the momentum across our businesses, evident in our second-quarter results and reflected in our increased guidance for 2021. It's worth noting that we have delivered the greatest value creation in our history over the last eight years, despite numerous new market entrants during the entirety of that period, both public and private. We have generated consistent financial results through a variety of macroeconomic cycles, including most recently the financial impact of the first worldwide pandemic in over 100 years. The results are self-evident. We have record performance in the second quarter in our merchant segment on several bases: absolute, sequential, and year-over-year, while also producing strong growth versus pre-pandemic levels. Simply put, our payments businesses continue to significantly outperform and gain share fueled by our long-held technology-enabled focus and solid ongoing execution. On a more granular basis, we saw strong double-digit growth in new sales in both Global Payments Integrated and our vertical market businesses in the quarter. Our U.S. relationship-led business again achieved record new sales. This marks the third quarter out of the last four in which we have achieved such a high level of performance. Rather than impede our strategy, the pandemic spurred further share gains and catalyzed the digital strategies we have had in place since 2013. Our omni-channel business is accelerating yet again in the second quarter, with growth in excess of 20% despite lapping the enhanced shift toward e-commerce globally, which began with the start of the pandemic in early 2020. New customer signings this quarter include Foot Locker as a key customer in Europe that will leverage our unified commerce platform to modernize its payment acceptance capabilities. We are pleased to have also signed new global UCP partnerships with Hunter Douglas and Euronet Worldwide subsidiary, xe.com. Our ability to deliver a single API solution, virtually around the world, has been a key driver of our success, and our unique multinational footprint in both the virtual and physical worlds has proven to be a differentiator versus both legacy and new market entrants. Within our vertical market businesses, we had a number of new key customer wins for our quick-service restaurant business, including Frisch's Big Boy, Krystal, and the Fiesta Group, while AMD and TouchNet continue to deliver record revenue performance as they have throughout the pandemic. Notably, TouchNet continues to add new marquee colleges and universities domestically and internationally, including the Arkansas State University System and Sheridan College in Canada this quarter. We're also making great progress on our partnership with Google and remain on track to onboard Google as a merchant customer this quarter, and expect to launch our product and integrate Google solutions in our digital portal environment in the fourth quarter. Our issuer business delivered growth beyond the high end of our targeted long-term range. We are pleased to have signed a new multi-year partnership with a leading financial services arm in Brazil, the financial services arm of the country's leading supercenter retail chain, to provide a range of technologies for its credit card and digital accounts, as well as to handle on-us acquiring transactions. Recall that transaction optimization is one of our key post-merger initiatives. More to come on that at our investor conference. We also signed a letter of intent with a large global financial institution, and longstanding partner in a new market in LATAM, which will mark another significant milestone for us in our continued expansion into the region. Further, we executed a multi-year extension with the UK's largest retailer, Tesco, enabled by our shared digital modernization vision for the future. Finally, we are pleased to have extended our relationship with Mercury Financial for a range of digital technologies. This relationship serves as further proof that our industry-leading platform offers the agility to support leading-edge tech companies. TSYS recently launched a strategic go-to-market partnership with Price Waterhouse Coopers or PwC. As part of the TSYS partner program, we expect that our collaboration with PwC will diversify and expand our distribution and allow us to jointly offer innovative solutions, expertise, and execution capabilities to clients of all sizes across the full spectrum of neobanks, fintechs, start-ups, and program managers. Again, diversification of distribution has been one of our key objectives since 2013, and we are using the same playbook with TSYS that we have successfully deployed in the past. We continue to capitalize on the broad and deep pipeline we have the good fortune to have in our issuer business. Today we have 15 letters of intent with institutions worldwide, six of which are competitive takeaways. Turning to our unique collaboration, we now have 20 active prospects in our pipeline with AWS, up from a dozen last quarter and four at the end of 2020. These include a mix of new financial technology entrants and other non-traditional issuers in addition to large financial institutions. As growth accelerates in this market, we believe that we are the ones doing the disrupting. While buying out solutions may seem novel to some, we have, in fact, been providing leading technologies to that segment of the market for decades in both our issuer and merchant segments. We continue to deliver innovative installment payments products for customers. We are currently enabling our merchant customers in Canada in partnership with Desjardin with the Visa installment solution. CIBC will also launch a combined TSYS Visa installment solution in early 2022. Finally, in our business and consumer segment, we expect a unique post-sale arrangement with AWS to expand our distribution capabilities, again, much like we've been doing since 2013. Together with our issuer business, we intend to further disrupt the program management segment in the near future. This is yet another example of the application of our strategies to legacy businesses. We expect the same successes here as we have generated in other contexts. Paul.

Thanks, Jeff. Our financial performance in the second quarter of 2021 demonstrated meaningful sequential momentum and exceeded our expectations. These results highlight outstanding execution on our differentiated strategy of technology-enabled solutions. Specifically, we delivered adjusted net revenue of $1.94 billion representing 28% growth compared to the prior year, and 10% growth compared to 2019. Adjusted operating margin for the second quarter was 41.8%, a 480 basis point improvement from the prior year, despite the return of certain costs we temporarily reduced at the onset of the pandemic. The net result was adjusted earnings per share of $2.04 for the quarter, an increase of 56% compared to the prior year, and a 35% improvement from the same period in 2019. Taking a closer look at our performance by segment, Merchant Solutions achieved adjusted net revenue of $1.29 billion for the second quarter, a 42% improvement from the prior year. We delivered an adjusted operating margin of 48.5% in this segment, an increase of 750 basis points from the same period in 2020, as we continue to benefit from the recovery and our improving technology-enabled business mix. We're pleased that our acquiring businesses globally generated 46% adjusted net revenue growth compared to the second quarter of 2020, led by strength in the U.S. Notably, our U.S. acquiring business, which includes our integrated and relationship-led channels, grew approximately 25% compared to the same period in 2019. These results were led by our integrated business, which produced a stellar quarter, generating a 53% adjusted net revenue improvement compared to 2020, and 35% growth relative to 2019. As for our own software businesses in the U.S., we are delighted with the overall portfolio, which delivered growth of roughly 30% compared to the prior year, and achieved solid sequential improvement relative to the first quarter. As Jeff mentioned, our vertical markets businesses continued to see positive bookings trends, providing us with a favorable tailwind for the second half of 2021. Additionally, our worldwide e-commerce and omnichannel businesses saw growth in excess of 20% year on year as our value proposition, including our Unified Commerce Platform, continues to resonate with customers. Regarding our international businesses; while these markets have been a bit slower to recover compared to the U.S. on an absolute basis, our portfolio of businesses across Europe and Asia contribute favorably to our overall merchant adjusted net revenue growth compared to 2020. These businesses have also returned to growth on a combined basis when compared to 2019. Moving to Issuer Solutions, we are pleased to have delivered a record $446 million in adjusted net revenue for the second quarter, marking an 8% improvement from the prior-year period. This strong performance was driven by the ongoing recovery in transaction volumes across many of our markets, while non-volume-based revenue increased mid-single digits during the period, led by our Output Service business, which grew at roughly 10% for the quarter. Our issuer business also achieved record second-quarter adjusted operating income, and adjusted segment operating margin expanded by 110 basis points from the prior year, also reaching a new second-quarter record of 43.9%, as we continue to benefit from our efforts to drive efficiencies in this business. This is an impressive result, particularly given we achieved margin expansion of 640 basis points in the second quarter of 2020. Additionally, our issuer team signed five long-term contract extensions during the quarter, and our strong pipeline bodes well for future continued momentum going forward. Finally, our business in the Consumer Solutions segment delivered adjusted net revenue of $227 million, representing growth of 5% despite lapping the benefit of the 2020 CARES Act last year. Adjusted operating margin for this segment was 26.9%, which was also ahead of our expectations. The outstanding performance we delivered across our businesses serves as further proof that we continue to gain share as well as the alignment of our strategy with the accelerating digital trends coming out of the pandemic. We are also pleased that our integration continues to progress well. We have now executed actions allowing for the achievement of annual run-rate expense synergies of at least $400 million and annual run-rate revenue synergies of at least $150 million that we have been targeting, exactly as we said we would do, despite the pandemic. We will continue to deliver additional expense and revenue synergies over the coming periods as our efficiency efforts continue and we leverage the collaborative growth opportunities across our businesses. From a cash flow standpoint, we generated second-quarter adjusted free cash flow of roughly $452 million, or a little over $1 billion through the first six months, and continue to expect adjusted free cash flow in excess of $2 billion for the year. We reinvested approximately $130 million in capital expenditures during the quarter and continue to expect capital expenditures in the $500 to $600 million range for the full year. In June, we successfully closed our acquisition of Zego, consistent with our expectations, and we expect this business will contribute roughly $50 million of adjusted net revenue to our merchant segment in 2021. I would like to echo Jeff's excitement regarding the agreements we announced today to acquire Bankia's payments businesses in Spain, which we expect to close in the fourth quarter. Furthermore, we remain on track to complete our purchase of Worldline's PayOne business in Austria in the second half of this year. We are pleased to continue to return cash to our shareholders this quarter with the repurchase of 1.5 million of our shares for approximately $290 million. Following our balanced deployment of capital this quarter, we ended the period with roughly $3.3 billion of liquidity and a leverage position of roughly 2.6 times on a net debt basis, which is flat last quarter as expected. This leaves us with ample capacity going forward. Based on our current expectations for the continued global recovery, we are again increasing our guidance for adjusted net revenue to now be in a range of $7.7 billion to $7.73 billion, reflecting growth of 14% to 15% over 2020. We continue to expect adjusted operating margin expansion of up to 250 basis points compared to 2020 levels on a standalone basis. As a reminder, Zego will be a modest headwind to the upper bound of our margin target, now that it is closed, as it does not currently operate at our margin levels, despite having already achieved rule of 40 status. At the segment level, we are increasing our expectations for Merchant Solutions, adjusted net revenue growth to be around 20% from high teens previously, which assumes the current pace of recovery continues worldwide. This marks the second consecutive quarter that we have raised our outlook for our merchant business. We are also increasing our outlook for our issuer business, and now expect growth to be in the low to mid-single-digit range for 2021, up from our prior outlook, which was for low single-digit growth. We continue to expect our business and consumer segment to achieve mid to high single-digit growth for the full year, consistent with our long-term growth target for NetSpend. As a reminder, we increased our guidance for this segment on our first-quarter earnings call in May, despite lapping the impact of the 2020 CARES Act. We also expect net interest expense to be slightly lower in 2021 relative to 2020, while we anticipate our adjusted tax rate will be relatively consistent with last year. Putting it all together, we are increasing our expected adjusted earnings per share for the full year to a range of $8.07 to $8.20, reflecting growth of 26% to 28%. Our raised outlook presumes we remain on track for the balance of the year. We look forward to updating you on our longer-term expectations for the business at our upcoming Virtual Investor Conference, which we will host on Wednesday, September 8. And with that, I will turn the call back over to Jeff.

Thanks, Paul. As we look ahead to next month, it is worth reflecting on how much we've evolved our business. Throughout much of the last eight years, we have witnessed a multitude of new market entrants and public companies, shifting modes of competition, and macroeconomic cycles too numerous to count. Some have said a number of times over the last decade that our best days were behind us. The facts say quite the opposite. In fact, we have delivered the greatest value creation in our history during that period, and we believe we are positioned today to continue our track record of strong performance. The second quarter and our raised guidance today are the most recent examples. Our rates of revenue growth and bookings trends underscore sustained share gains despite managing through an unprecedented crisis. One proof point: we now expect our U.S. payments business to roughly reach its original growth target for 2021 based on 2019 goals. In short, we grew right through the pandemic. More to follow in September. The reasons for our success are straightforward. Our distinctive strategies, the technology investments we have made over many years, the support of our market-leading partners and customers, our execution consistency, and the quality of our team members have allowed us to significantly expand our competitive advantage. As painful as it has been, COVID-19 has reaffirmed the digitization of our businesses. We believe that the best is yet to come. You can judge that for yourselves next month. Winnie?

Before we begin our question and answer session, I'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.

Hi, thanks for taking my question. Great results here across the board. So maybe to start off, just looking at the merchant segment, revenues relative to 2019, I think they're roughly 12% higher. Could you talk about what's driving that? Are you seeing a lot of pent-up demand among consumers that's driving that type of growth? I'm trying to gauge whether, as we go forward, this type of growth rate could accelerate if there's a lot of pent-up demand?

Hey, good morning, Vasu. Thanks for the comments. It's Cameron. I'll kick it off and maybe ask Paul to provide a little bit of color as well. I would say it's a few things. I would start with the efficacy of our strategy. Obviously, the technology-enabled businesses that we've been investing in for the last seven to eight years now continue to lead the way for growth across the business, including our integrated business, which grew 53% in the quarter, and up 35% versus 2019 levels. In addition, our e-commerce and omni business grew well over 20% this quarter, again, topping performance from last year where it also grew in the high teens. So again, relative to 2019, we're continuing to see very strong growth across the e-commerce and omni channels of the business. For me, it's really the strategy that we've been deploying that's driving growth. I think we continue to see a lot of tailwinds in those businesses looking forward through the balance of 2021, and heading into 2022, and then beyond. Paul, I don't know if you want to add any more specific comments on that.

Yeah, I would just say, as we said in the press release, we're pleased so far with what we've seen in July in relation to continuing improvement relative to 2019 across the merchant segment. The only other thing would be, we expect to see growth in vertical markets when you're talking about just the segment, with a 30% improvement year-over-year in the vertical markets business. So yes, I think that covers it.

Got it. And just for my follow-up, I wanted to ask the capital allocation question. I saw that you guys raised the share buybacks. Any color on whether you're expecting to do more buybacks versus M&A? And on the M&A front, I know, historically, you've been focused on doing accretive deals. But given where valuations for FinTechs are, that seems to be becoming harder and harder. So just curious on your thoughts. Would you be open to doing something that’s revenue growth accretive, but perhaps earnings dilutive at this point, if it makes sense for the long term? And if yes, what are some of the areas that might make sense for you to pursue?

This is Paul, and I'll cover the share repurchase, and then maybe turn it over to Jeff on the M&A side. Yes, we did resize the share repurchase authorization due to the fact that we had made significant purchases since our last authorization, and we've said all along, our preference is to allocate capital to M&A. When an M&A opportunity is not in front of us, we will deploy capital on share repurchases. We were very pleased to do so this quarter, much like we did last quarter. We do not have share repurchases in the guide as a go-forward matter for the back half of the year, but we are always opportunistic as it relates to share repurchases. We want to make sure we have the capacity to execute if we choose to do that. Jeff, do you want to talk about the M&A side?

Yeah. Thanks, Paul. Regarding the second part of your second question, we have actually been very active on the M&A front in the last six months. I think with today's announcements regarding Bankia, we committed about $1.3 billion to M&A in the last six months while committing to about $1.5 billion for buybacks. As we said in the press release, I think we have been very balanced between the two. As we also said in the last quarter, Zego is a technology and software-driven business very consistent with our strategy, particularly given the size of the real estate target addressable market. Yet notwithstanding that, going back to the premise of your question, no, that deal was not dilutive, and I think we announced it was immediately accretive, though there was no discernible impact on earnings. But nonetheless, it was not dilutive. We look at many things, so it's hard to say what we would or wouldn't do in the abstract, but I would say that since we've been running the company in the last eight years, we've not done a dilutive deal. I don't expect us to. That's not the mindset we have as shareholders, owners, and managers of the business, so I really don't expect our strategy to change.

Got it. Thank you very much for the color.

Thank you.

Hey, Jeff, Cameron, and Paul. Congratulations on the good results. I was kind of hoping, coming out with the pandemic or at least sort of lapping pandemic impact, if you can provide a breakdown of the expectations of tech-enabled businesses, Q3 versus Q4, what do you see? What part of the recovery is volume-based that’s yet to come that benefits future numbers? Education, events, things like that. Some quantification would be great on Q3 versus Q4.

Yeah, Ashwin. I'll start off, and maybe Cameron might want to add something as it relates to the merchant business. But largely speaking, we're expecting Q3 and Q4 to be largely similar across our businesses. As we had said at the beginning of the year, we had expected the back half of the year to return to a much more normal kind of state. Clearly, there are some re-openings that will continue to benefit, kind of re-fueling Q4 as countries around the world re-open from some of the closures. You're exactly right, Ashwin, as it relates to some of our vertical markets businesses. As I've just commented, we're very pleased with the growth we saw in Q2, but we would expect to see more meaningful growth in those businesses in the back half of the year as we have more reopening and more tailwind impacts as it relates to those businesses. Those would be the dynamics between Q2, Q3, and Q4 certainly in merchants, and there wouldn't be anything I'd necessarily call out across the other two businesses. Actually, I'm very pleased to raise the revenue guidance on our issuer business; low single digits to low to mid-single-digit growth as it talks about kind of improving fundamentals in the back half of the year there, and pretty static stages as it relates to our business and consumer once kind of stimulus impact has been netted out of the first half and going into the back half. Cameron, do you have anything to add?

No, I think that covers it pretty well, actually. I would only add just a couple of points. One is, across the technology-enabled businesses, as I mentioned previously, we're continuing to see very strong momentum in those businesses. As Paul highlighted, we saw July sequentially better than June, so I think we feel good about how things are continuing to progress, and those businesses are poised to continue to see strength in the back half of the year. If you just look at the overall guide for the Merchant segment, that roughly 20% growth in 2021 versus 2020, those back couple of quarters are going to have to be around that same level to make the averages work for the whole year. So that gives you a sense as to how the business is performing, again, against tougher comps in Q3 and Q4 than we faced in the second quarter. To Paul's point around the vertical market businesses, in particular, as schools re-open, we expect to see a rebound in the back half of the year, as well as active segments, which have seen very strong booking trends. Many of those events are occurring in the back half of 2021. We feel very good about how that business is poised to recover. Again, AdvancedMD and TouchNet have continued to grow right through the pandemic at a double-digit pace throughout 2020 and 2021. Those businesses are obviously in a very healthy position overall, but getting a nice tailwind from ACTIVE and schools, in particular in the back half of the year will help the vertical market business continue to recover as an overall matter.

That's all great to hear. The second thing I had was with regards to AWS, obviously great to see the expansion of what you're doing with AWS. On the Asia business, any update and any metrics you can provide that can be useful for investors and markers of the progress you are making on that?

Yeah, Ashwin, it's Jeff. I'll go ahead and answer that. Let me first start with NetSpend and our new announcement today. It follows a very similar format to the issuer announcement almost exactly a year ago today, but the one thing I will point out is that there's primarily a focus on our part and Amazon's part on B2B distribution. I'd say in particular on program management with the scale that we have directed at neobanks, fintechs, and startups. While it is a similar template, it's a very targeted initiative, very much focused on B2B. Obviously, that's something we'll be talking a lot about during our Virtual Investor Day. In terms of your question on how we're doing on the issuer side. Look, we're really pleased. We disclosed again yesterday what our LOI pipeline looks like outside of Amazon. I think we said today that we have around 20 letters of intent with our colleagues over at AWS, and that's covering a spectrum of potential issuers, including neobanks, fintechs, and startups, as well as traditional financial institutions. To give an update there, we've singled out one in Asia that is in testing already and is live on a beta basis, and we expect to be fully live by the end of this calendar year. To give you a sense of progress, Ashwin, that number is up from four at the end of calendar 2020. So we've quintupled the number of LOIs that we have with neobanks, fintechs, startups, and financial institutions primarily in collaboration with AWS really in the second quarter. We couldn't be more pleased and excited about doing more business with AWS now in the form of NetSpend. This should be a recognition, not just internally, but externally, of how happy we are with how things are progressing.

Thanks. We'll look for the update at the Investor Day.

Thank you.

Thank you. Good morning, Jeff, Cameron, and Paul. Your merchant results really underscore the strength in the credit card business, with credit really roaring back in Q2, closing the gap with debit, and debit strength was kind of the hallmark of COVID. As you look forward, do you think strengthened credit is really here to stay for the next year-plus?

Yeah, David, good morning. It's Cameron. I'll kick-off and I'll ask Jeff and Paul if they would like to add anything. I think the short answer to your question is yes. I think credit card account growth is as high as it's been since 2010. Obviously, on the heels of the pandemic and in a more normal operating environment, we clearly see credit outperforming. A lot of that was prepaid debit as stimulus was funded on those types of accounts, so a lot of the debit growth was prepaid. But coming out of the pandemic, getting back to a normal operating environment, we would expect credit to drive growth and really outperform. We see a lot of tailwinds, particularly for our merchant business as a result of that heading into the back half of 2021 into 2022. Paul, do you want to talk a little bit about the metrics that we're seeing in the issuer business?

Yeah, as Cameron said, we did have good metrics as it relates to account growth in our issuing business. We also saw very strong transactional growth in the issuing business, which I think underscores your question and also Cameron's commentary on it.

Yeah, I would just add, if you look at our pure merchant businesses globally, as Paul highlighted in his script, they grew 46% in the second quarter. I think that's versus worldwide credit growth, and Visa of roughly 35%. So we're seeing, again, really nice tailwinds. I think it really is a result of our differentiated technology-enabled strategy, leading to outsized growth relative to where we see the market overall. Those trends are very positive, and obviously it's something that gives us a lot of confidence in the updated guide that we provided this morning.

I appreciate that. Just as a follow-up, Jeff, you really underscored GPM's differentiation in your opening remarks. I'm curious what you think about PayPal's new pricing model at physical point-of-sale credit and debit card transactions with the rollout of Zettle pay. Do you see that being a significant competitive threat to GPN, or is PayPal too small at the physical POS?

Yes, David, great question. Let me just start by saying PayPal is a good partner of ours. As we've said before, on both the TSYS side and the Global side, really around the world. So we've got a lot of respect for PayPal. We think they are a terrific company. As it relates specifically to Zettle and their physical point of sale, Zettle has been in Europe for quite some time. In fact, when PayPal did the deal, I think it was mostly all European but now they've announced some migration in the U.S. Our business in Europe, particularly in the U.K. and London, has outperformed for many years throughout that period, both pre-Paypal acquiring Zettle and in POS. As it relates to the U.S. market, look, that market's competitive today, it was competitive yesterday, and it's going to be competitive tomorrow. It is rather pointed out that our growth in our U.S. business matches the same growth as our worldwide acquiring business at around 46%. This compares to Visa's and MasterCard's worldwide growth of 35% for Visa and 33% for MasterCard. Whether Zettle was in Europe or North America over the last several years, it hasn't put a dent in our growth. The resilience of our business and market share gains, as you rightly pointed out, have been evident in our prepared remarks. We'll discuss that in more detail during our Virtual Investor Conference regarding the resilience of our business. Numerous new smart competitors will come and go, but our business has been resilient, both pre-pandemic and post-pandemic, and I think I can walk you through the numbers and why it’s going to remain that way. PayPal is a great company, but at the end of the day, I don't think that their actions change our vision or strategy one iota.

And David, it's Cameron. Just another point to add on that, if you look at the growth in accounts, in our point-of-sale business in North America in the second quarter, it was up 100%. So notwithstanding a competitive market across the point-of-sale distribution landscape, we continue to see great traction with our point-of-sale solutions, particularly in restaurant, retail, and obviously across the vital platform. Again, I think we feel very good about how our point-of-sale system stacks up to compete in the market today and the growth we're seeing.

Understood. Congrats on the strong results.

Thanks, David.

Congratulations, everyone. My first question is about normalizing over time. We typically consider that the 2022 merchant figures should be around 130% to 135% of 2019 levels. Is that still feasible? You had a positive trajectory, and could you break down what's left to recover? Which parts of the business still have significant room for improvement, which ones have some recovery potential, and which are already on track? If there's still a lot of recovery possible, we might reach that 130 to 135 range. Those are my questions.

Yeah, David, it's Cameron. Maybe I'll kick off and ask Paul to fill in some explicit details. If I step back and think about where we are today. If you look at our pure acquiring businesses globally, they were up roughly 19% in the second quarter versus 2019 levels. In the U.S., that number was 25%. So again, I think we feel from a pure acquiring standpoint, we're on a pretty good trajectory. Now, what still needs to come back to get to '22, a more normalized rate of growth relative to 2019, or to say it differently, where we would have been absent the pandemic? Well, Europe is growing relative to 2019, but it's certainly growing at a pace lower than what we've seen in the U.S. market. Therefore, Europe grew somewhere in the high single digits versus 2019 for the second quarter. We still need more tailwinds from Europe fully recovering. As you know, the U.K. didn't open up until mid-July, so as we get to the back half of the year, we're expecting to see a little more tailwind in Europe as it relates to growth, particularly relative to 2019 trends. Then, of course, Asia, which is a smaller part of the business, is lagging relative to 2019 levels, largely because many markets continue to struggle with the pandemic, remain closed, and of course, cross-border activity in Asia is very depressed. As we think about 2022, the U.S. is on a pretty good trajectory to get back to something reasonably close to what we would have been absent of pandemic, given the outsized growth and momentum we have in that business. We need Europe to continue to improve as lockdowns ease and markets begin to reopen, and you see more cross-border travel pick up into 2022. I'd say the same thing is true for Asia, just given where it's relative to the pandemic. I think the vertical markets are well poised to get back to reasonable levels compared to 2019. As we continue to see, again, recovery in schools and recovery in Active in the back half of the year as those markets in particular reopen. Paul, I don't know if you'd add anything more to that, but I think that gives a pretty good view of the market and business.

Yeah, I think it sums it up. Good.

I would like to add to the discussion about the issuer, and Paul can share his insights too, Dave. We had an excellent quarter on the issuer side, particularly with our non-U.S. businesses aligning with what Cameron mentioned. Recently, we’ve seen a reopening of many markets outside the U.S. for issuer activities, which will provide a favorable comparison for the first half of next year. On the commercial front, while there has been some improvement in commercial cards, they are still not quite back to 2019 levels. Overall, it looks quite positive. Looking at 2022 for the issuer side, with the reopening of borders outside the U.S. and the normalization of commercial cards relative to 2019, these factors should support our issuer business. I anticipate similar sentiments from Cameron about the Merchant side, as there will be a strong tailwind for the Issuer sector heading into 2022 as well.

Thanks. Yeah. Great momentum with a lot of room to recover, which is great to hear it. I guess my follow-up, Zego, it looks like you paid almost a billion dollars for acquisitions in Q2. I know you said $50 million in the back half, which is a $100 million run rate, so 10 times revenue. Is that just growing at an astronomical pace?

Yeah. Hey, Dave, it's Jeff. I think you're missing one of our assets in there. We also announced the acquisition of PayOne's business in Worldline in the second quarter. Then obviously today we announced Bankia. So what we said was that the purchase price for Zego, just to clarify, was about $930 million. There's also about $100 million in tax assets. So that nets you down to about $825 million, Dave. Relative to the $100 million we do a year that’s about eight times revenue. Having said that, at the end of the day, we do think it's a great business. I mean, Paul alluded to this in his commentary. If you think about the surrogate Rule of 40, growth goes really beyond that. If you think about what we guided to when we did the deal at the time, we expect a double-digit organic revenue growth rate with margins in the 20s. That's how you get to the rule of 40 number. We think that's a very attractive basis. We view the deal closer to eight times rather than the notional ten you mentioned.

Got you. Great. Well, hey, thanks guys, nice job.

Thanks, Dave.

Thanks, Dave.

I'm actually with Morgan Stanley.

Congratulations on your respective business.

Yeah. Just so everybody's clear, I wanted to follow up on the acquisition commentary. There has been obviously inflation and valuations, and as Jeff said, I'm just looking for things to be accretive, etc. At least in a reasonable timeframe. Is that causing you to look further afield or look for acquisitions that are maybe more tangential to what you have done historically? If so, where are you seeing opportunities today? I think the ones that you've announced thus far, Zego and PayOne, as well as Bankia today, are quite interesting, but just want to understand more of the mindset.

Yeah, James, it's Jeff. No, the answer to your question is no, we're not looking further afield. We have plenty of potential ahead, and our current M&A strategy is solid. We've executed around $1.3 billion in M&A over the past six months, including today's Bankia announcement, while committing to about $1.5 billion for buybacks. We believe the economics have worked out well in response to Dave's question as well. We have a broad pipeline and certainly more opportunities to pursue. However, we do consider our perspective on M&A in relation to the capital markets, intrinsic value, share price, and other factors. So, we have bought back approximately $1.5 billion worth of stock, and these efforts are not mutually exclusive; we accomplished both at the same time. We renewed our authorization back to $1.5 billion, which is not included in our guidance. We effectively balance our strategies, growth, and other considerations. It's crucial to note that we feel we're in a strong position as we enter 2022 and the remainder of 2021 without additional deals, so we are where we want to be. I believe our strategy remains strong because we have many opportunities to explore. However, I can't recall any deal we passed on due to concerns about being too expensive or not being sufficiently accretive.

That's great color. I appreciate it, Jeff. Going back to current market conditions, Cameron gave really good color on the different geographies, etc. I am just wondering if you’re seeing any fluctuations in activity related to the Delta variant, and how much you can isolate, maybe to whether those variances, if there are any, are coming from regulation or policy versus just underlying consumer behavior? Hopefully, that makes sense, but I'm trying to figure out where and how much policy may be impacting spending trends versus just the Delta variant itself.

Yeah, James, it's Cameron, and I'll comment on that. As you think about the comments we made earlier as it relates to July, we did see sequential improvement in July relative to June, so I think we still feel very good about the momentum of the recovery overall. To be very clear, I don't think we've seen any real impact yet from the Delta variant. Obviously, we're monitoring it very closely and it's a fluid environment, but based on data that we have through the end of last week, the volume trends for July were an improvement over what we saw in June sequentially. Most of the markets around the globe in which we operate, and particularly now in markets where we're seeing a reopening that's more recent, like the U.K. and Canada, are poised to see stronger volume recoveries as we enter the back half of the year. I don't think there's a lot of appetite for more widespread lockdowns, particularly here in the U.S. as it relates to the Delta variant. Markets outside of the U.S. may react differently, but for our business, those will be relatively small impacts. We're focused on the U.S. as that constitutes about 75% of our business, and I'd say thus far, we haven't really seen any discernible impacts. However, it is something that we continue to monitor closely through the balance of the year.

As Cameron stated, if you consider that the non-U.S. markets, which, as Cameron alluded to, make up about 25% of the Company. Responding to David Koning's question, if those markets reached the level of recovery that the U.S. market saw, that's probably a couple of hundred basis points of incremental revenue growth over time that you could see. These factors were not present in the second quarter. Mentioning the same thing regarding the issuer side, we have only recently seen a positive reopening response for many markets outside the U.S., which will serve as a favorable comparison for us in the first half of next year.

Thank you very much.

Thank you.

Thanks, James.

Just a quick clarification. Just the $2 point revenue raise. Can you break that up between obviously the quarter outside the deals, even just the cyclical piece? I want to make sure I covered that. And then on Bankia, I'm guessing this is the same playbook as Taisha, and I know that did very, very well for you. I'm just curious if there's any difference there philosophically.

Maybe I'll take the first one and then turn it over to Jeff for the second one. If you think about the guidance raise, obviously, we commented on to close Zego. We said that's roughly $50 million as it relates to the back half of the year, so that's the first section of the guidance raise. The second section would be both the overperformance in Q2, as well as continued better performance in the back half, which underpins the guidance raise as it relates to the segments on the issuing side, as well as merchant. So those would be the two components. There's a little bit of FX headwind relative to the back half versus the first half on a realized basis. We also don't have the same kind of stimulus impact in the first half versus the second half. But those would be the two components, the Zego of roughly $50 million and then the remaining piece of that is the performance.

As it relates to Bankia, I think the short answer to your question is yes. It's the exact same playbook that we've executed with Taisha and our Filmortia joint venture over the last decade-plus. Obviously, we continue to be very excited about the Spanish market. It is one of the most attractive markets in Europe and frankly, it's one of the most attractive markets globally. Just to give you a little bit of color, the domestic volume in Spain grew 30% in the second quarter and 15% over 2019, despite continued restrictions throughout the country as a result of the pandemic. The underlying secular trends in Spain remain incredibly attractive, which makes the timing for the Bankia acquisition particularly advantageous for us as well. Bankia consists of around 100,000 predominantly small and medium-sized merchants, although they do venture more into the large category. But I think the interesting aspect of the Bankia portfolio is it is more skewed towards domestic volume. I think it's a really attractive addition to our joint venture that's going to allow us to further expand distribution in this very attractive market and provides great cross-sell opportunities for the differentiated technology solutions we have with our existing joint venture. We're delighted to announce that this morning and consider it a nice addition to our European business.

Agreed. Thanks.

Thanks, Tien.

Hi guys. This is Ben on for Ramsey. Thanks so much for taking the question. I wanted to follow up on something you mentioned at the beginning of the call on the Issuer business. I think you mentioned some of the newer potential deals are with some kind of newer entrant FinTechs. I'm just wondering, are those the kind of deals that, as you've discussed before, you perhaps might not have gotten without the AWS partnership? What sort of capabilities do those require that are different from your traditional issuing business?

Yeah, it's Jeff. So the answer is, yes. I think the key thesis behind the partnership with AWS, which was formed almost a year ago, was first, to modernize the architecture and technology. As we've said in response to Ashwin's question, that's gone very well. The second piece was distribution. Of those 20 letters of intent we have pending with AWS, many of those are with neobanks, fintechs, startups, and you're correct. I don't think we would be in the position we are today without that. I'd also say more broadly, our general shift from cloud-enabled technologies initially into cloud-native technologies is resonating well with institutions of all sizes, including neobanks, fintechs, startups, and the like. Secondly, I'd say, as you saw our announcement on the expansion of our AWS relationship today into NetSpend, we're very focused on program management. To answer your second question, we need to be more vocal on program management. Historically, revenue growth in the issuing business is primarily with financial institutions in North America and Europe with larger financial institutions. A key focal point of ours, both pre- and now post-AWS, is on program management. It's a key part of our relationship going forward.

Great. And if I could ask just one quick follow-up on a NetSpend as we’re discussing it. Any update on the MoneyToPay business and any potential synergies between that and NetSpend? How does that fit under the AWS partnership?

Yes, it's Jeff. I'll go ahead and start, and Cameron can join too. We work at these. Our strategy in NetSpend revolves around ongoing digitization. NetSpend had a relatively good digital footprint pre-pandemic, and the pandemic has accelerated that. Today, about 30% of interactions with consumers with NetSpend are done online, meaning spending with the card online. We expect AWS to continue to accelerate that given their footprint. The second aspect, as described in response to your first question, really emphasizes B2B and program management, inclusive of earn wage access and our tech solutions. Those components are also in play on B2B. The third element is internationalization, and a piece of that is MoneyToPay. The second piece we announced today with Bankia includes a prepaid business and a debit business as well. The short answer to your question is, it's gone really well. Our thesis regarding internationalization is strengthened by the identity of Global Payments; the three countries we operate in, particularly on the acquiring side, as well as the relationships we have in those markets. A good example is continental Europe with Spain, which enables us to expand what is currently a U.S. only business for NetSpend along with some of the competitors and really bring it overseas. We are roughly nine or ten months post the initial closing of the MoneyToPay joint venture with Caixa, and we find ourselves ahead of what we expected. Our thesis that we can bring our management, products, and technologies to those markets is proving to be valid. The under-penetration of those markets compared to the U.S. also holds true. We've seen some benefit there on government spending too, as we all emerge from the pandemic, not just here in the U.S. but overseas. It’s working out better than we had hoped, and we're really pleased to be where we are, especially with the partners that we have.

The one thing I would add is that the AWS partnership on the NetSpend side makes it easier for us to bring our technology capabilities to markets like Spain, where we've been delighted with the performance of MoneyToPay thus far. We look forward to adding the Bankia prepaid business into that business as we move forward in time, and we expect that AWS will facilitate the introduction of our technology product offering to markets outside the U.S. as we continue to pursue our internationalization strategy for the NetSpend business.

Okay. Great. Well, thank you very much for taking the questions, and I'm looking forward to seeing you next month.

Thank you, and on behalf of Global Payments, thank you for joining us on the call this morning.