Global Payments reported its “best quarter in four years” as management highlighted a positive underlying performance despite significant increases in corporate expenses and losses on disposals. Total Group revenue rose 6% to $2.29bn.
Recent corporate activity has sharpened Global’s focus on two propositions – merchant acquiring and issuer processing. It has sold its Gaming Solutions business for $415m and is about to close the sale of Netspend, a consumer-focused prepaid cards business for $1bn. The proceeds are set against the $4bn purchase of EVO, a multinational acquirer processor. The new refocused strategy sees Merchant Solutions as the largest division, accounting for three-quarters of future revenue.
Group operating expenses rose 26% to $2.23bn driven by significant increases in corporate costs – up from $160m to $283m – and a one-off loss of $245m booked on disposals. Corporate expense included $90m share-based compensation and $175m for costs related to acquisition, integration and separation.
Group operating income fell 85% to just $56m. After net interest expense of $111m, Global Payments swung to a pre-tax loss of $56m from a profit of $284m in the same quarter of 2022.
“Adjusted non-GAAP” operating income, which management believes gives a fairer reflection of the underlying health of the business, rose 10% to $883m.
Net revenue from the Merchant Solutions division was up 9% to $1.6bn with operating income risings a healthy 14% to $507m. Global Payments outgoing CEO, Jeff Sloan, spoke of this business as “highly resilient” and said that growth had accelerated across “a number of worldwide markets.” Payment volume was up 10% in Q1 although the cash value wasn’t disclosed. eCommerce and omni-channel are showing fastest growth, with volume increasing in the “high teens”.
In Europe, Global Payments sees “strong trends” in Spain and Central Europe, both markets where EVO brings additional scale, but the UK remains problematic “as the implications of Brexit really take hold, as well as sky high inflation in that market.”
Management sounds confident about the EVO acquisition. The two companies are both headquartered in Atlanta and many of EVO’s management were prepped in payments while working at Global.
Having plenty of time to prepare its plans since the announcement in August 2022, Global’s new CEO Cameron Bready said “we have made substantial progress on our integration and remain enthusiastic about the synergy opportunities available.” He has “executable plans” to realise at last $125m of synergies primarily from “aligning our business operations and go to market strategies, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures, and realising scale efficiencies.”
Beyond cost cutting, Global Payments will need to realise revenue synergies too. The obvious one is to leverage EVO’s excellent B2B solutions in the US which are focused on SAP, Oracle and Microsoft ERP software. But Bready also believes he can cross-sell Global’s software to EVO’s European customers and this is likely to be more challenging in my view. Internationalising vertical software is tough and EVO’s diverse footprint means the work must be replicated for each national market which multiplies cost and risk. Also, no European acquirer has yet managed to sell business software at scale to its SME base. If successful, Global would be the first.
Although EVO is taking much of the focus, Sloan reported that, “Spring by Citi,” a new partnership with the giant American bank to provide payment acceptance to its corporate customers is progressing well. Live in the US, UK and continental Europe, Spring by Citi is running at $3bn annual processed volume and on-track to double by the end of 2023.
Overall, Merchant Solutions unadjusted operating margins expanded to 32% from 30% a year earlier although management cautioned that margins would likely contract in the near term, diluted by the the addition of less profitable revenues from EVO.
The much smaller Issuer Solutions business grew revenue 6% to $571m and operating income 20% to $83m. Unlike FIS, Global Payments remains committed to keeping issuer and merchant facing businesses under the same roof. Management is very positive about issuer processing and claims to have nine letters of intent from new bank customers.