David Koning • Robert W. Baird & Co. Incorporated

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CFO & Treasurer Mimi Carsley clarified that the contract change involves Jack Henry as a reseller, and while it impacts reported revenue, the net economic impact is unchanged. She confirmed the total headwind is $16 million, with $12 million occurring in Q1 within the Core segment. She also stated the gain on asset sales would be recognized mostly in Q1.

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President and CEO Greg Adelson acknowledged the observation and explained that while card volumes will likely follow typical seasonal patterns, the overall segment growth is increasingly driven by other products. He specifically highlighted that the PayCenter business is becoming more meaningful, boosted by a large volume of 'send' transactions for a few large clients, which is altering the historical sequential dynamics of the segment.

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CFO Mimi Carsley attributed the card processing growth rate to a mix of factors, noting strong growth in faster payments, while bill pay growth was more modest than the prior year. Regarding interest income, she explained the increase was due to successful negotiations for more attractive yields with bank counterparties. She stated the level should remain stable in Q2 but is correlated with Fed interest rate movements.

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President, Chairman & CEO, Ronald Clarke, and CFO Peter Walker clarified that the large figure on the accounting cash flow statement was boosted by favorable working capital changes in the period. They directed attention to what they consider the 'real' free cash flow, or 'cash net income,' which grew 11% year-over-year. They indicated this operational cash generation is the correct measure and is not subject to the volatility of balance sheet timing.

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President, Chairman & CEO Ronald Clarke and CFO Peter Walker clarified that the record cash flow figure seen on the accounting statement was boosted by favorable working capital changes in the period. They directed investors to focus on 'cash net income' or cash EPS, which grew 11% and is the company's preferred measure of operational cash generation. They indicated the accounting-driven boost was not indicative of a new sustainable run-rate.

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CFO Craig Conti explained that the higher CapEx is a direct result of accelerated growth in the Government Solutions business, which is now growing at 12% versus low-to-mid single digits previously, requiring investment ahead of revenue. Regarding the D&A forecast, Mr. Conti clarified that the decline is driven by the 'A' (amortization), as non-cash amortization expenses from acquisitions made several years ago are beginning to run off.

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CFO Craig Conti confirmed that if overall results trend toward the low end of guidance, the Commercial Services growth rate would likely be less than high single-digits. He clarified that the bad debt expense was a small, non-recurring accounting reconciliation for aged receivables and not indicative of current operational trends. He also agreed that the absence of ERP implementation costs next year should provide a positive tailwind for earnings.

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CFO Craig Conti attributed the Q1 growth moderation to seasonality and tougher year-over-year TSA throughput comparisons, not a change in underlying fundamentals. He reiterated the three growth pillars for the segment remain intact. CEO David Roberts addressed the New York City question by stating that given the ongoing RFP process, the company will wait for the city's decision before providing more specific commentary.

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Executive Craig Conti explained the T2 service revenue decline was tied to installation and warranty services, which follow pressured hardware sales, while the pure SaaS component continued to grow. For Commercial Services, he indicated there was no major underlying trend in the 'other' category and that a prior-year one-time item may have impacted the comparison.

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CFO Josh Whipple confirmed merchant growth is expected to accelerate in the second half, driven by the Genius platform launch. He noted the payroll divestiture, representing approximately $65 million in quarterly revenue, should close in Q3. CEO Cameron Bready added that recent tax legislation improves cash flow, supporting the $7.5 billion capital return plan and providing flexibility for more buybacks or debt paydown while targeting 3x leverage by year-end.

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CFO Josh Whipple confirmed the Merchant segment's growth is expected to accelerate in the second half of the year, driven by the Genius platform launch, and quantified the payroll divestiture's quarterly revenue impact at approximately $65 million. CEO Cameron Bready added that improved cash flow from recent tax legislation allows for an increased capital return plan and provides flexibility for additional buybacks or debt paydown.

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CEO Cameron Bready attributed the stable Q1 performance to underlying business momentum, pockets of international strength, and the positive impact of the company's ongoing transformation initiatives. He stated that progress on their go-to-market strategy, as highlighted by COO Bob Cortopassi, is driving better outcomes and gives the company confidence in its outlook for the year.

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CFO Elena Gomez noted that the second half of the year faces tougher comparisons due to a prior-year ARR conversion benefit and that Q2 GPV was stronger than expected, indicating their guidance remains prudent. She emphasized that current investments are aimed at long-term growth. CEO Aman Narang added that July trends were in line with expectations.

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CEO Dushyant Sharma explained that as Paymentus captures more market share, particularly with large government clients, historical seasonality is shifting. He also noted that a tough year-over-year comparison from large billers launched mid-quarter last year contributes to the flattish sequential guidance. Regarding bad debt, Sharma characterized the expense as an insignificant amount resulting from prudently writing off old accounts.

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Sanjay Kalra (Executive) explained that transaction growth is driven by both new client implementations and same-store sales, with new clients being a slightly larger factor. He attributed the conservative sequential revenue guidance to the unpredictable seasonality of new large enterprise clients onboarded in late 2024, stating the company is taking a prudent approach until a full year of performance data is available.

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Founder and CEO Dushyant Sharma explained that the prudent Q1 guidance stems from the recent onboarding of large enterprise clients, whose transaction trends are not yet fully understood. He emphasized focusing on the year-over-year improvement in adjusted EBITDA margin rather than sequential revenue. Regarding macro resilience, Sharma highlighted the nondiscretionary nature of the bills Paymentus processes (e.g., utilities, insurance), which provides historical stability and insulates the business from recessionary pressures.

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CFO Sanjay Kalra explained that higher Q3 network fees resulted from onboarding large enterprise clients with existing higher fee structures, which also demonstrated Paymentus's ability to calibrate OpEx for profitability. For Q4, he cited a prudent guidance approach due to the newness of these clients. CEO Dushyant Sharma detailed the long-term strategy to leverage their platform's control over the payment journey to eventually monetize interchange, a key differentiator from traditional processors.

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CFO Sachin Mehra clarified that this is not necessarily a new trend, stating he expects the growth of rebates and incentives to accelerate in the second half of the year. He noted the market remains competitive and that the Q2 ratio was also skewed by higher FX volatility, which boosted the revenue denominator. He reiterated Mastercard's disciplined approach to winning the 'right' deals.

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CFO Sachin Mehra confirmed that FX volatility is a component of the transaction processing assessments revenue line. He explained that higher volatility has a positive impact on this line and the associated yield, while lower volatility would have a negative effect.

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EVP & CFO Maurizio Nicolelli and Chairman & CEO Rohit Kapoor clarified that the higher employee cost growth is driven by hiring more highly-skilled technical talent for Data & AI and by annual salary increments, which occur in Q2. Maurizio Nicolelli also explained that the year-over-year decline in 'other costs' was due to a one-time restructuring charge in the prior-year quarter that did not recur.

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Maurizio Nicolelli, Chief Financial Officer, affirmed that the 16% year-over-year growth in Data and AI-led revenue is considered sustainable and will be a primary growth driver going forward. Rohit Kapoor, Chairman and Chief Executive Officer, clarified that the strong Healthcare growth was not due to one-time events but resulted from new client ramp-ups and broad strength across service lines, reflecting years of deliberate investment in the vertical.

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CEO Rohit Kapoor attributed EXL's outperformance to two factors: maniacal execution leading to high customer satisfaction and early investment in market-relevant analytics and digital capabilities. Regarding Insurance Analytics, he clarified that the ITI acquisition primarily benefited banking and healthcare. The acceleration was driven by a rebound in insurance analytics services, growth in actuarial and indemnity work, and strong traction in data management for insurance carriers with legacy systems.

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CFO Jagtar Narula indicated the Mobility processing rate should tick up but will be tempered by the impact of expected interest rate cuts. CEO Melissa Smith clarified that the Benefits segment's growth is supported by custodial revenue from new accounts, not just interest rates, which keeps overall growth within the expected range.

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CFO Jagtar Narula confirmed that Q1 sequential patterns for Corporate Payments were more normalized and that yields should be relatively stable for the year, though they may dip slightly from Q1 levels due to a seasonal mix shift towards lower-yield travel. He also affirmed that the analyst's estimate for Q2 interest expense in the mid-$60 million range was 'about right.'

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CFO Jagtar Narula stated that the corporate payments rate in 2025 is expected to be roughly flat compared to 2024. CEO Melissa Smith added that while WEX aims to outperform the market, overall HSA account growth has slowed to mid-single digits industry-wide, which will moderate the segment's growth in the medium term.

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CFO Jagtar Narula explained the Mobility interchange rate benefited from sustainable pricing increases and fuel prices, and he quantified the one-time finance fee reversal at approximately $10 million. CEO Melissa Smith added that this was a correction of past calculations and would not recur. Regarding Corporate Payments, Melissa Smith attributed the results to fuel price headwinds, the expected migration of a large travel customer, and broader same-store sales softness.

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CFO Robert Hau stated the acceleration is not unnatural. He cited several drivers, including lapping the prior year's transitory benefit from high inflation in Argentina, which creates an easier comparison. He also pointed to the growing contribution from high-growth Clover, accelerating international expansion in markets like Brazil, and the ramp-up of large enterprise clients on the Commerce Hub platform as key factors supporting stronger growth in the second half.

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Robert Hau, CFO, outlined several factors driving the second-half acceleration. These include easier year-over-year comparisons as the transitory benefits from Argentina's economy fade, Clover's continued ~30% growth making it a larger part of the mix, increasing contributions from international expansion like in Brazil, and the ramp-up of large enterprise clients on the Commerce Hub platform.

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CFO Bob Hau attributed the Q4 issuer slowdown primarily to lower volumes in the plastic card business, linked to the broader credit environment. He specified that for 2025, Target is expected to go live in late March and Verizon will begin to ramp in September, with another large client, Desjardin, coming in 2026.

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CFO Bob Hau attributed the slowdown to several factors. He explained that the tailwind from Argentina's inflation has eased significantly, from a 15% benefit in Q1 to 6% in Q3. He also noted that the interest rate benefit there has subsided. Finally, he emphasized the significant headwind from foreign currency exchange, which had a 15-point negative impact on the Merchant segment's adjusted revenue.

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CEO Julie Sweet stated that GenAI demand remains very strong and that fluctuations are expected as the business scales. Regarding acquisitions, CFO Angie Park and CEO Julie Sweet clarified that the strategy is unchanged but disciplined; the slower pace reflects a lack of targets with favorable economics in the current market. Park confirmed the 3% inorganic contribution for FY25 remains intact.

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CEO Julie Sweet confirmed that GenAI demand remains very strong and is becoming increasingly embedded in all services, with fluctuations expected as the base grows. CFO Angie Park and CEO Julie Sweet clarified that the acquisition strategy is unchanged but disciplined; the company has not seen targets with favorable economics in the current tough market. Park confirmed the ~3% inorganic contribution for the year is still expected.

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CFO Angie Park clarified that the sequential performance in Health & Public Services was due to normal quarterly ebbs and flows with no material impact to note. She also confirmed that pricing was 'relatively stable' in the quarter, though the market remains highly competitive.

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CFO Angie Park described the Q2 guidance of 5% to 9% growth as 'very solid' and stated there was nothing unique to call out that would cause an unusual sequential pattern. She reiterated that Q1's over-delivery gives them confidence for the full year. Regarding interest expense, Park confirmed that net interest income was lower due to lower cash balances and the new interest expense from long-term debt, and affirmed that this impact is fully factored into the full-year EPS guidance.

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CEO Christopher Caldwell responded that GenAI is now pervasively integrated into their solutions, making the current growth rate the 'new net normal.' CFO Andre Valentine added that margin strength is supported by ongoing Webhelp synergies, with a projected $120 million in savings for the current fiscal year, up from $95 million realized in fiscal 2024.

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President and CEO Christopher Caldwell responded that while some industries like BFSI and high-value goods are reinvesting in human-led service to differentiate, others like telecom and consumer electronics are not yet showing this trend. On growth, Mr. Caldwell expressed confidence that with the rapid expansion of new solutions and the Catalyst business, a return to mid-single-digit growth could be achieved 'shortly thereafter' fiscal 2025.

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CEO Bryce Maddock explained the trend was due to a geographic mix shift toward lower revenue-per-employee regions, though he noted the high-revenue U.S. region returned to growth in Q4. He expects revenue per employee to increase in 2025 due to mix stabilization and automation efficiencies from the Agentic AI practice. CFO Balaji Sekar added that revenue yield per employee was fairly stable in 2024 and should improve with the sale of more specialized services.

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Executive David Mackey confirmed that sequential growth is normalizing as idiosyncratic issues are now behind them. He stated the GAAP switch did not impact Q3 cash flow, which was strong due to lower DSOs. He also clarified there were no significant non-recurring switch-related costs; the main margin drag in FY25 was poor SG&A leverage in H1, which should normalize in FY26 and allow for margin improvement.

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Executive David Mackey identified Shipping and Logistics, High-Tech and Professional Services, and Utilities as the key verticals expected to drive growth and offset challenges in Healthcare and Travel. He noted that Shipping and Logistics, in particular, is poised to be a leading vertical for the fiscal year. Regarding the top client, Mackey confirmed the growth is sustainable, driven by an expanding relationship, new service areas, and increased volumes, with the impact primarily seen in the Utilities vertical.

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CFO Joel Wilhite advised against over-interpreting short-term fluctuations in payment-specific yield. He emphasized that the company's primary focus is on the 'north star metric' of total transaction yield (total revenue divided by total transactions). Wilhite affirmed that AvidXchange is comfortable with its overall monetization strategy, as suppliers continue to select from a variety of payment options.

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CFO Joel Wilhite confirmed the guidance projects forward the trends seen in Q2, including slightly weaker transaction volume and a lighter TPV yield. He detailed three factors affecting yield: larger payments shifting away from high-monetization rates, a mix shift to other modalities for new suppliers, and greater monetization of smaller payments which has a dilutive effect on a weighted basis.

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CFO Joel Wilhite explained that while quarterly variability is possible, the company's track record shows steady yield expansion over time, driven by the conversion of checks to digital payments and new initiatives like Payment Accelerator. CEO Michael Praeger added that the executive team is highly focused on transaction yield as a key metric reflecting the effectiveness of their business strategies.

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CEO Stephanie Ferris explained the Q3 sequential growth was due to normal seasonality in transaction processing, which peaked in Q3 this year versus Q4 last year. CFO James Kehoe added that the key takeaway is the ~100 bps growth acceleration in H2 vs H1. Regarding interest expense, Kehoe advised against using the Q4 figure as a run-rate for 2025, as it includes assumptions on M&A and is not a clean number.

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CFO Chris Suh clarified that the gap was primarily due to currency volatility. Although volatility improved from Q3, it was lower than the prior-year period, and the associated cross-border volume growth was also lower than in Q4 of last year, impacting the revenue conversion rate.

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