Ramsey El-Assal: Hi there, thanks for taking my question today. Could you help us think through the timing and magnitude of the contribution from the Commerzbank JV this year? Will it ramp quickly? Does it–you know, how much is baked into guidance, basically, from that deal?
Cameron Bready: Yes, it’s a good question, and let me just be clear, Ramsey, about the joint venture itself. We’re not buying into an existing portfolio that Commerzbank has. Commerzbank doesn’t have an acquiring business today. What we’re doing effectively through the joint venture is entering into a distribution partnership whereby Commerzbank will obviously be a distribution channel for us. They’ll own 49% of the business but they’re largely bringing distribution to the party as it relates to the joint venture that we’re establishing with them Essentially, think of it as a greenfield opportunity to really grow and scale a business in Germany, starting with a very small base that we acquired through the EVO acquisition last year, but it’ an opportunity to grow and scale a more meaningful business in Germany over a long period of time.
Commerzbank is one of the largest domestic banks in Germany. They have one of the strongest market positions, particularly across small and medium-sized merchants, which is obviously more of our target market and the markets that we serve around the globe. Today, we think it’s a fantastic new partner that’s going to allow us to build over time a more meaningful business in Germany, but obviously it’s going to take a while to scale there.
Ramsey El-Assal: Got it, great. Sounds like a great new channel. A follow-up from me, could you update us on the U.K. business and just let us know if you’re seeing stabilization there on the macro or consumer spending front, and I guess in the context of takepayments chatter, do you have the product capabilities that you need over there to compete effectively at this point?
Cameron Bready: Yes, it’s a good question, Ramsey. I’m not going to comment on the latter part of that, naturally. Not surprisingly, we don’t comment on market rumors of that nature. But I think as it relates to the U.K. market, I would say a couple things. One is we are starting to see some signs of stabilization there, which I think is positive. Obviously they reported their inflation numbers this morning – they were generally in line with expectations, unlike where the U.S. was yesterday, so I think that’s a constructive step forward as well. I don’t know that we’ve seen absolute bottom in the U.K. as it relates to the macro pressure, obviously, that we’ve highlighted over the course of much of the last year and beyond; but I do think we are getting to a point where we’re seeing things stabilize in that market, which gives us a little bit more optimism about where we can go over the longer term in the U.K. I would say as it relates to product and capability, the short answer is yes – I mean, we’ve worked hard to bring new products and new solutions to that market.
We’ve talked about bringing our GP POS solution to the U.K. market, which we think will give us a very competitive point-of-sale to market, and again that’s not highly differentiated like it is here in the U.S. market. We’ve brought other solutions from a commerce-enablement perspective to the U.K. market as well, so I think certainly from a product capability standpoint, we have everything that we need to be successful in that market. I think the challenge with the U.K. has really been macro driven over a longer period of time, and that’s obviously something that I’ve said before. I think we’re starting to see signs of stabilization there.
Ramsey El-Assal: Great, thank you.
Operator: Thank you. Our next question comes from the line of Dave Koning with Baird. Please proceed with your question.
Dave Koning: Yes, hey guys, thanks. I thought one of the really encouraging parts of the quarter and just the guidance is free cash flow conversion. Not many companies are guiding to around 100% conversion. Can you discuss that a little bit – you know, what about your company converts so well? Kind of a pairing with that question, you’ve had semi-high merger add-backs, although they’ve come down the last few quarters. Are those going to go down pretty significantly in 2024?
Josh Whipple: Yes, I’ll go ahead and take that. Look – we were, I would say generally very pleased with our free cash flow conversion, especially for the quarter. We were over 100%, for the full year we were 100%, and this was in line with our expectations as we’ve been guiding over the last several quarters and the last year. I would say that this conversion follows the trajectory that we saw in 2022 – you know, a little bit weaker in the first half of the year and stronger in the second half of the year. What I would say in ’24, we continue to go ahead and target that same general trajectory and pattern, and we expect to go ahead and convert roughly 100% in 2024, excluding the impact of the timing–you know, change of recognizing the R&D tax credits.
As it relates to the add-backs, I would say we continue to go ahead and expect add-backs to come down. I think as you’ll note in our scheduled time of the press release that we expect GAAP earnings to be approximately 50% of adjusted earnings – that’s a significant improvement relative to last year, and we expect that to go ahead and continue as time goes on.
Dave Koning: Thank you, and maybe just a quick follow-up on the pace through the year of earnings. It sounds like once you anniversary Netspend and anniversary EVO, both revenue and EPS can accelerate a little bit, given just the profiles?
Josh Whipple: Yes, look – what I would say is we’re expecting 11%, 12% EPS growth. Q1, as you rightly point out, we’re anniversarying Netspend and gaming, so that will be slightly below the range, but I would say Q2 will be in the 11% to 12% range, and then Q3/Q4 will be in the 12% to 13% range, and that kind of gets you to 11 or 12 for the full year.
Dave Koning: Great, thank you.
Operator: Thank you. Our next question comes from the line of Bryan Bergin with TD Cowen. Please proceed with your question.
Bryan Bergin: Hey guys, thank you. Good morning. Want to dig in on the merchant growth guide first. Are you expecting volumes to be generally in line with the forecast you have? Just any comments on additional potential lift from pricing in that view, and are you forecasting that merchant growth level in the balance of the year after EVO and the gaming sale to be generally level?
Cameron Bready: Yes, good questions. I would say, maybe just to address the last one quickly, the short answer is yes. Once we anniversary EVO in the first quarter and gaming, I would expect Q2 through Q4 to be relatively consistent based on our current outlook for the full year. Just going back to the first part of your question, I would say yes, we would expect volumes to generally track relatively in line with the revenue growth that we’re seeing in the business. T hat’s been a consistent trend, if you look at the schedule we provide in our earnings presentation. You can go back quite a long period of time and see that trend being pretty consistent, which is something that we’re pleased about, so the outlook for 2024, I would say yes, by and large we expect volumes to generally track our revenue expectations as we work ourselves through the balance of the year.
Then I would say on pricing, we really haven’t changed our philosophy on that front. We’ve been pretty consistent in our commentary as to how we think about pricing, not only our commentary but our actual execution of it as well, clearly geared towards making sure that we think we’re getting paid fairly and appropriately for the level of value and service that we’re delivering to our customers. We’re not the low cost provider in the market and we don’t strive to be, and we think the value proposition we bring to customers and clients is differentiated and we want the price for our services to reflect that, so there’s nothing unusual, I would say, in 2024 from a pricing perspective. It’s a little bit more of a continuation of executing against that philosophy that we’ve had over a long period of time.
Bryan Bergin: Okay, I appreciate that. A follow-up on the vertical solutions business. As you think about potential investments, where may you have further interest to lean in, where you aren’t currently exposed?
Cameron Bready: Yes, it’s a good question. We take a lot of care to be very deliberate in terms of where we think we want to own software assets versus where do we want to partner. We obviously have a fantastic integrated business, we have a great partnership model, and that is a business that gives us, I think, a lot of opportunity to continue to benefit from embedded payments, integrated payments – put whatever term you want to around it, so obviously that is a focus of our growth as well as, in certain vertical markets, wanting to own software assets because we think we can drive better payment monetization, we think we can drive better growth and better differentiation in our solutions by owning software. We tend to target verticals, as we said for a long period of time, that are large addressable spend markets, there needs to be a strong nexus with payments.
Obviously we’re not in the business of owning software just to own software. We want to own software in vertical markets where there’s strong consumer spend and a good opportunity to monetize payment flows coming out of that. The third thing I would say is we want to invest in software businesses where we can leverage our investment across the broader Global Payments. A big focus for us is finding ways to amplify the impact of the investments we’re making, whether it’s in our more traditional payments businesses or in our vertical markets software businesses. We want to be able to take investments that we’re making in those businesses and find ways to amplify them across the broader Global Payments portfolio. Then lastly, as I talked about before, we’re very focused on those vertical markets that have some international applicability.
One of the things we’ve been successful in doing, and I highlighted some of this in my script today, is taking our software solutions to markets outside of the U.S. – U.K., Canada, Australia, etc., and using those obviously as a means by which to drive growth and differentiation in markets outside the U.S. that we serve today, so that’s another important element as we think about vertical expansion. Without getting into specific verticals, that’s how we think about the world, but it’s a pretty consistent mindset, I would say, that we’ve had over a long period of time as we’ve thought about investing in software.
Bryan Bergin: All right, thank you.
Operator: Thank you. Our next question comes from the line of Andrew Jeffrey with Truist Securities. Please proceed with your question.
Andrew Jeffrey: Hi, good morning. Appreciate you taking the questions. Cameron, I love the build-up the growth rates in merchant and the focus on software and technology broadly. Can you talk a little bit about–again, the macro aside, maybe a couple levers that might accelerate merchant organic revenue growth, or longer term, and again I want to stay away from cycle guide, but just theoretically, conceptually, is there the capacity to accelerate top line, how do you do it, and how much of a sense of urgency is it versus just compounding what is a very nice rate today? Just trying to think about that longer term.
Cameron Bready: Yes Andrew, good questions. I would say certainly I think there are opportunities over time to be able to drive that higher, slightly higher. I would just balance that against the fact that our merchant revenue today is well north of $7 billion, so you’ve moving a big number when we’re talking about growth rates in the range that we’re talking about. But the areas where I’m sort of bullish, and I think there are probably prospects to drive better rates over time, is really around point of sale software. We’re making meaningful investments in that area. We spent a lot of time in our Q3 call talking about our overall point of sale strategy, how we think about the different assets that we own today, where we’re trying to leverage those across our wholesale business, across our direct business, across our international markets, across enterprise QSR and stadium and event venues, etc.
As we’re rolling out our next generation of capabilities in 2024 and we think about bringing POS solutions to markets outside of the U.S. over time, as I touched on, I’m pretty–you know, I do have high expectations for what we’re able to do with that point of sale business and growing and scaling it over the next several years. I certainly think that is a lever that we’d want to lean on and try to drive obviously continued strong rates of growth in that channel, that can obviously augment the overall rates of growth for the business. I’d say the second thing is really the international markets, as I highlighted. I do think those markets, just from a competitive dynamic perspective, are less intense than the U.S. market. I think we have great market positions, we have great partners, and we’re bringing more and more product and capability to those markets that I think can drive more differentiation and therefore lead to better rates of growth for the business over time, so certainly that’s another area in the business where I continue to see good opportunities for us to grow and scale.
Then third, obviously the more embedded payment trends that sort of become tailwinds for the business, the more omnichannel continues to drive meaningful growth, I would say in the business overall, I think we’re poised to take advantage of those trends over a longer period of time, and obviously I think those support clearly the rates of growth that we have in the business and hopefully would provide some tailwind to that over time.
Andrew Jeffrey: Okay, I appreciate that, it’s helpful. Then just a quick one to follow up, it looks like yields within the issuer business have been pretty stable. Can you just comment on renewal terms – you called out a couple big customer renewals, I just wonder if pricing is stable or what the trends are there.
