Dan Perlin: That’s great. Just a quick follow-up on, I guess, really balancing cost synergies and then the investments that are necessary. So there seems to be a lot of questions around how much investments you guys have to make in kind of the current period in 2024 in particular, to achieve some of the revenue growth targets that you’ve set out. And this is true for kind of EVO, but also just overall in merchant. And then how much of that ultimately will be required to flow through into 2025 growth rates. So it’s really that balance between what you got to put to work today and then maybe one of the buckets — the big buckets. You kind of alluded to it a little bit on the call, but anything around specifics would be helpful. Thank you.
Cameron Bready: Yes, I mean, I can’t — I don’t want to get too far ahead of myself as it relates to 2025 and beyond, but I would start by saying, we’re always sort of balancing kind of our desire to invest in the business and wanting to see obviously the benefits of the top-line growth flow through to margin and margin expansion in the business. But we recognize the merchant business is operating margins kind of in the high 40% level, which is a fairly attractive level of margin, overall margin quantum for the business overall. So I think the philosophy around that’s going to continue to remain the same. I think we have sufficient investment capacity to continue to drive growth the business in the range that we’ve been discussing, while at the same time allowing some of that benefit to flow through and allowing margins continue to creep up over time, as we’ve also talked about.
And as I said in my prepared remarks at the end, we are looking at ways to organize our business in a different fashion, to simplify the business further internally, to think about our operating model and structure that I think is going to free up more investment capacity that will allow us to both, again, continue to invest in growth initiatives in the business, while at the same time allowing margins to continue to drift higher over time. So I think we’re well poised kind of for the balance of 2024 and heading into 2025. And a lot of the initiatives we’re pursuing internally are really designed to continue to allow us to support that balance as we move forward.
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. Great job this quarter. And I guess my first question within merchants; you kind of talked about organic volumes growing high-single-digits, organic revenue high-single digits, so pretty similar. Maybe can you discuss kind of the puts and takes, kind of between there, like mix pricing, new products, and would you expect revenues to grow above volumes just as you proliferate kind of software and new products over time?
Cameron Bready: Yes. Dan, it’s a good question. I would say it’s really hard to get into all the drivers within the merchant business, just given the number of geographies we’re in, the number of different lines of business we’re in, et cetera. But as I step back and look at it kind of at a macro level, we do want to see volume obviously trending in the same direction as revenue. We do think over time, as we continue to push more software, more commerce enablement solutions, more value-added services, put whatever label you want to on it. Obviously, we do expect to see some ability to grow revenue at a pace that to some degree outstrips volume growth. But recognize when we’re selling vertical market software, we’re selling point of sale software.
Yes, there’s software revenue that is generated from those interactions. But we’re also obviously trying to monetize payment flows as well when we do that, which drives incremental volume into the business. So those two should remain correlated over time, and it’s always our philosophy to have those remain correlated over time. But certainly as we continue to pivot the business towards more software and more commerce enablement, we do expect to see some opportunity for revenue growth to decouple to some degree. But I wouldn’t say wildly from the underlying trends we see in volume. But there’s a lot of drivers behind that. Some markets obviously have better volume growth and maybe, slightly less revenue growth, given the mix of businesses, and some markets have slightly better revenue growth and slightly worse volume growth, given the underlying mix of businesses and what we’re seeing from a market dynamic and pricing perspective.
So there’s a lot that goes into it overall. But the overarching philosophy, I think is what I described.
Dave Koning: Yes. Got you. Just a quick follow-up. Merchant margins, I know tons of investor questions around that, and it’s gotten better each quarter since EVO. The year-over-year decline has gotten better. Is Q2 going to be up year-over-year now that EVO will be anniversary?
Josh Whipple: No. What I would say is, again, I would follow kind of the same trajectory that you saw us coming out of the year. We saw 30 basis points of improvement coming out of Q4. So you expect them to be approximately flat in Q2. That’s how I would shape it.
Cameron Bready: And then, of course, to get to the overall guide for the year, they would be up in Q3 and up in Q4, kind of getting to that overall, sort of up 30 basis points for the full year period.
Dave Koning: Okay. Great.
Cameron Bready: And I think my commentary on that, and I appreciate you calling it out. Certainly, we’ve been very deliberate in terms of how we’ve been executing synergies in the merchant business around the EVO transaction. As Josh highlighted earlier, we started down 170, and then we went to down 90, down 60, now down 30. So you can very clearly see the trajectory of margin improvement as we continue to execute against synergies from the transaction. And, look, it’s not hard to think about what the balance of the year looks like given the track record we have over the last several quarters of margin improvement as we execute against synergies.
Operator: Thank you. Our next question comes from the line of Trevor Williams with Jefferies. Please proceed with your question.
Trevor Williams: Great. Thanks a lot. Yes. I wanted to follow-up on merchant margins as well, and just the impact from EVO. Clearly, there’s been an impact, just EVO coming on at a lower margin profile. And Josh, you referenced some of the reinvestment in EVO’s technology outside of the U.S. Can you just give us a sense for where you’re at in terms of that process of reinvestment, anything you could quantify in terms of what impact that has had on margins. And then as we work through the year in the synergy realization ramps, should we see a higher flow through from the synergy realization? Thanks.
Josh Whipple: Yes. So what I would say is it’s a bit of a balance as we think about the reinvestment into the business and the technology platform as it relates to those pieces of technology that are in markets that we’re currently not in. So it really, Trevor, it’s a bit of a balance there. And what I would say is you can expect to go ahead and see, just given the overall margin profile and how that’s trending, you can expect to see a higher flow through in the back half of the year, which we just talked about. We said Q2 that would be approximately flat. But then there you’re going to go ahead and see margins become favorable in Q3 and Q4 to get to the up 30 basis points on a year-over-year basis. So you’ll start to see better flow through as we realize more synergies from the EVO transaction in the balance of 2024.
Cameron Bready: And Trevor, it’s Cameron. The only thing I would add to that is obviously there are certain markets that EVO operated in that we did not when we acquired them last year. And we have a very, I think deliberate approach in terms of how we think about availability, reliability and stability of the technology environments that we operate in these markets. And quite clearly, there was investment needed in EVO’s platforms to bring them up to the level of, again, availability, reliability and stability that we expect for our technology. Those investments we’ve been making. And to Josh’s very good point, we’ve been balancing that against synergy realization and all that sort of reflected in our plans and the guide that we provided for 2024.
So I think all those investments are doing exactly what we expect. We’re seeing better performance from a technology perspective. We’re seeing sort of the reliability metrics and standards kind of move towards our targets. And those investments are doing, again, exactly what we described. And I think we’ve done a nice job absorbing them, while also executing on synergies and getting the margin back to where we started pre-EVO, and we’ll look to expand further from there in the back half of the year.
Josh Whipple: Yes. And the only other comment I would make is if you think about the business generally is over $9 billion in revenue, margins mid-40s. So expanding margins 50 basis points on a year-over-year, I think it is very respectable. And I’d also comment that just given our overall merchant margins of 47% approximately and expanding margins 30 basis points, again, as healthy margin growth, I think, in a business of this size and with this profile and the geographies that we currently do business in.
Trevor Williams: Great. Thanks. And then on merchant revenue, Cameron, it sounds like trends in April have been relatively consistent with Q1. I mean should we interpret kind of the Q1 growth rate as 8% organic, maybe there’s about 1 point or so of benefit from leap year, so kind of the go-forward core growth rate looking at kind of 7% as kind of the normalized Q1 and that’s what April has been consistent with?
Cameron Bready: Yes. I think that’s a fair interpretation. I mean the way I would position it is we think, if you exclude the impact of EVO, the non-anniversary portion of EVO, we’re going to grow merchant in that 7%, 8% for the year, and I think we remain on track to do that. Obviously, there was a slight benefit in Q1 from leap year. That’s not overly impactful in the grand scheme of things, but we’re still squarely in that kind of 7%, 8% range for the balance of the year, as we sit there today.
Operator: Thank you. Our final question this morning will come from the line of Will Nance with Goldman Sachs. Please proceed with your question.
Will Nance: Hey guys, appreciate you taking the question. I think a lot of might have been asked already, but Cameron, maybe I wanted to ask about the 30% increase in U.S. merchant partners that you had in the slides today. Maybe you can just expand a little bit on that number and provide a little more context. I think there’s been obviously a lot of focus around the integrated business and the rate of ISV additions in that business. So just how has that trended? How is that number kind of different than sort of like the ISV additions that you’ve referenced in prior quarters? Is there any contribution from EVO? Just any clarity on that number would be helpful.
Cameron Bready: Yes, happy to. So look, we have a variety of different partners in our business and I think it’s important to kind of start with that overarching context. When we talk about new partners in the business, these are new relationships that we have in the business that generate incremental volume, incremental lead flow and incremental opportunity for our merchant business going forward. So obviously, our partner strategy is an important part of our strategy as we think about how to grow the business, coupled with obviously the direct distribution assets that we have and the feet on the street distribution resources that we utilize to grow the business as well. I would say not all partners are created equal. As we think about the integrated space, we saw a nice growth in what we would call more strategic partners.
Obviously, those are truly deep integrated partners where we’re able to really form those very strong relationships. We’re able to integrate our payments technology deeply into their software environments. And we’re able to go to market collectively, obviously, to sell new merchant payment customers for Global Payments, the traditional sort of ISV integrated partner model that we’ve operated over a long period of time. We saw good growth in that channel as well as, obviously, I called out in my prepared remarks, I think we now have sort of two dozen-ish partners utilizing our new profac model, which is nice growth and expansion of that particular element of our integrated business over the last 6 months to 9 months since we’ve launched that into the marketplace.
But we’re also seeing good growth in partners across our payroll channel. We’re seeing good growth of partners across all aspects of the U.S. merchant business, which kind of contributes to that overall 30%-ish growth kind of the new partner ads. And that translates into something in the neighborhood of, call it, like 170-ish kind of new partners before the merchant business in the U.S. market in the first quarter.
Will Nance: Got it. Super helpful. And then I think you also mentioned that you’re starting to see some progress on the rollout of the revenue synergies in the EVO footprint. And I guess just maybe dovetailing on the question that was just asked around some of the investments in the EVO platform around kind of like resilience and system stability, what are the investments that are kind of required more on the revenue front and kind of where are you at on that? And I guess, what are the kind of the biggest areas that you’re most excited about? I know you’ve talked about POS in the past.
Cameron Bready: Yes. I think the areas of opportunity continue to be largely consistent with the things we’ve highlighted historically. One is bringing our capabilities, our solutions to the EVO markets that we were not operating in historically. And we see tremendous opportunity around GP POS, GP tom as well as our customer engagement suite to analytics and customer engagement platform and some of the other value-added and solutions we can bring to bear on those markets. And we’re already seeing good uptake in demand around that. The investments required to deliver that are obviously equipping the platforms that we operate in those markets, which in many cases came from EVO, equipping them to be able to handle the new product and capability and integrating those new products into that environment.
So if I sell a new customer in, say, Poland on GP POS, that obviously — that is fully integrated into the technology stack that we’re utilizing in Poland. We can obviously monetize the payment streams accordingly. We can bill our customers for those solutions; all the blocking and tackling that you need to have in place to be able to deliver new product and capability. And then, of course, training sales professionals to be able to sell it and obviously creating the right sort of language, native language capabilities around the platform to actually have it nativized for the Polish market, for one example. So those are the types of investments that we need to make to bring new product and new capability to the market. And that is obviously some of what we’re talking about when we say we’re investing in the business to be able to bring about more revenue synergies from the EVO transaction.
The second area we called out before is being able to leverage our global capabilities to support some of EVO’s larger multinational customers that they may support in a discrete market in additional markets beyond what they’re doing today. And certainly, we feel good about the momentum that we’re seeing on that front. We’ve already expanded relationships with a number of existing EVO partners, particularly kind of coming out of Mexico, where they have a probably stronger concentration of larger multinational companies who are customers through the relationship with Citibanamex, we’ve been able to expand that into markets outside of Mexico, which has been positive. And then lastly, in the B2B space, we continue to look to integrate PayFabric, which was EVO’s B2B platform into our merchant capabilities.
And I think we called out on our call, we’ve seen 100% increase in bookings for B2B acceptance by virtue of our ability to deliver EVO PayFabric capabilities now more broadly into our U.S. merchant base for B2B acceptance. So from that perspective, I think we see good tailwinds around the EVO revenue synergy opportunities. And those are things we continue to invest against. Because I think long-term, and I called this out on our last call, we’re probably more enthusiastic about the revenue synergy potential from the EVO transaction than we were at the time we announced the deal going back to August of 2022.
Will Nance: That’s great. Appreciate you taking the question, and thanks for all the helpful details.
Cameron Bready: Thank you.
Cameron Bready: And that concludes our call for this morning. I want to take a moment to thank everyone for attending, and I also want to thank you for your interest and support of Global Payments. I hope everyone has a great day.
Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.
