David Koning

David Koning from Robert W. Baird & Co. asked about the Mobility segment's processing rate, noting its increase in the back half of last year, and whether that pattern would repeat. He also questioned if the acceleration in the Benefits segment's core revenue was sustainable.

Answer

CFO Jagtar Narula indicated the Mobility processing rate should tick up but noted it will be impacted by expected interest rate cuts. Chair, CEO & President Melissa Smith explained that Benefits growth is driven by a combination of account servicing, payment processing, and growth in custodial balances from new customers, which collectively support the growth profile.

David Koning asked about the Mobility segment's processing rate, questioning if the higher rate seen in the second half of last year would repeat. He also asked about the sustainability of the growth in the Benefits segment's processing and account servicing revenue.

Answer

CFO Jagtar Narula indicated the Mobility processing rate should increase but noted that expected interest rate cuts in the back half of the year would be a headwind. CEO Melissa Smith clarified that the Benefits segment's growth is driven by a combination of account servicing, payment processing, and custodial revenue (not just interest-rate sensitive income), which together support the current growth levels.

David Koning asked if the Corporate Payments segment's purchase volume has returned to a normal sequential pattern and whether its yields will remain stable. He also sought clarification on the expected Q2 interest expense following the recent debt issuance and share buyback.

Answer

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.'

David Koning asked about the outlook for corporate payments yields in 2025 and the expected growth trajectory for HSA accounts after lapping a significant customer loss.

Answer

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.

David Koning inquired about the sustainability of the high interchange rate in the Mobility segment, the dollar value of a finance fee reversal, and its potential recurrence. He also asked about the Corporate Payments segment's performance, questioning if a large client transition was complete and what caused the revenue decline.

Answer

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.

David Koning questioned the sustainability of the healthcare segment's dramatic growth, which has increased by 50% in two years, and EXL's strategy to maintain pipeline momentum.

Answer

Vikas Bhalla (COO) stated that EXL's healthcare business is still in its infancy, given the enormous, data-rich, and fragmented nature of the healthcare market. He highlighted strong growth in payment integrity and domain operations, and significant opportunities in data enablement. He believes the headroom for growth in healthcare is enormous, and current growth is only a fraction of its potential.

David Koning inquired about the dramatic growth of EXL's healthcare segment over the past two years, its future outlook, pipeline, and the sustainability of its high growth rate. He also asked Maurizio Nicolelli about the lumpiness of margins this year and the expectation for more stable margin growth in 2026.

Answer

Vikas Bhalla, Chief Operating Officer, stated that EXL's healthcare business is still in its infancy, given the enormous, data-rich market with fragmented processes aggressively adopting AI and analytics. He highlighted strong growth in payment integrity and domain operations, with significant headroom for further expansion. Maurizio Nicolelli, Chief Financial Officer, acknowledged the margin lumpiness in 2025 (19.9% in H1, 19.4% in Q3), trending towards 19.5% for the year. He expects 10-20 basis points of annual margin improvement in 2026, but with a more flatlined cadence throughout the year, with Q1 being more reflective of the annual margin. Investments in front-end sales and capability development are driving H2 2025 spending.

David Koning asked about the dynamics causing employee costs to grow faster than headcount and inquired about the 'other costs' line item within the cost of services.

Answer

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.

David Koning asked for clarification on the new Data and AI revenue segment, seeking to understand the growth sustainability of what appeared to be a new AI sub-unit. He also questioned if the strong 11% sequential growth in the Healthcare business was driven by any lumpy, one-time factors.

Answer

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.

David Koning asked for the key differentiators driving EXL's significant outperformance compared to industry peers and questioned the reasons behind the sharp acceleration in Insurance Analytics growth.

Answer

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.

David Koning from Baird inquired about the expected margin decline in Q4, specifically if the projected 800 bps or $400 million lower EBIT represents the peak investment quarter, and how this investment trajectory will progress through the first half of next year.

Answer

CFO Paul Todd stated that Q4 margins would trough, with the lowest point expected in Q1 2026, before gradually building back to a normalized run rate by the end of 2026. CEO Mike Lyons explained the Q4 impact was a 'double whack' from peak short-term initiatives last year and current pricing reversals, detailing core investments in streamlining, modernizing platforms, and Project Elevate with IBM.

David Koning questioned whether the anticipated 800 basis point decline in Q4 2025 margins, representing $400 million in lower EBIT, marks the peak investment quarter. He also asked about the progression of this investment through the first half of next year and the key areas of investment.

Answer

CFO Paul Todd confirmed Q4 is a significant investment quarter, with margins expected to trough in Q1 2026, then gradually build up to normalize by the end of 2026, targeting a mid-30% range for 2026. CEO Mike Lyons detailed key investment areas: streamlining banking cores (from 16 to 5), modernizing surrounds (XD, CashFlow Central), enhancing Commerce Hub and Clover platforms, modernizing issuing (Optis, VisionNext), stablecoin initiatives (StoneCastle acquisition), and core technology improvements. He also highlighted Project Elevate with IBM, focusing on AI application across internal functions and business applications.

David Koning of Robert W. Baird & Co. Incorporated asked about the significant acceleration in merchant growth implied for the second half of the year, questioning if there were unnatural factors depressing H1 growth or boosting H2 expectations.

Answer

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.

David Koning from Robert W. Baird & Co. Incorporated asked about the drivers behind the expected acceleration in merchant revenue growth from 9% in the first half of the year to a guided mid-teens rate in the second half, questioning if this new rate is a sustainable starting point for next year.

Answer

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.

David Koning asked about the Q4 slowdown in the Financial Solutions issuer business and inquired about the timing for when new clients like Target and Verizon would contribute to reaccelerate growth in 2025.

Answer

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.

David Koning pointed out that the SMB segment's adjusted revenue growth of 9% was slower than in previous quarters, despite high-20s growth from Clover, and asked for an explanation of the dynamics outside of Clover.

Answer

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.

David Koning asked about the significant increase in data processing yield, questioning if it's partly driven by Value-Added Services (VAS) and whether such strong yield growth is sustainable given the continued expansion of VAS.

Answer

CFO Chris Suh clarified that the 17% data processing revenue growth, against 10% transaction growth, was primarily due to new pricing implemented in the second half of fiscal year 2025 and a favorable mix, specifically faster growth in higher-yield cross-border regions, rather than directly from VAS.

David Koning asked about the significant increase in data processing yield, its potential connection to Value-Added Services (VAS), and the sustainability of such strong yield growth in data processing.

Answer

Chris Suh, Visa's Chief Financial Officer, clarified that the 17% data processing revenue growth, compared to 10% transaction growth, was primarily driven by pricing actions implemented in the second half of fiscal year 2025 and a favorable mix. He specified that faster growth in higher-yield cross-border regions contributed to the acceleration in data processing yield.

David Koning pointed out the gap between stable cross-border revenue growth and accelerating volume growth, asking what other factors might be creating this differential.

Answer

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.

David Koning asked about the path to margin recovery, specifically if the 60 basis point decline was due to one-off issues and if the previous 13.4% margin guidance could serve as a baseline for growth next year, potentially leading to outsized margin improvement with Gen AI projects. He also inquired about the sustainability of strong sequential growth in retail, travel, e-commerce, and communications/media segments, and if these were lower-margin businesses impacting overall mix.

Answer

President and CEO Chris Caldwell and CFO Andre Valentine confirmed that the margin pressures were largely one-off items with a handful of clients, and while it would take a couple of quarters to resolve, they are confident in driving margins back up. Valentine highlighted drivers like ramping software revenue, deploying more technology, reducing low-complexity work, and continued shore movement. Caldwell added that new deals and auxiliary AI enablement services are higher margin. Valentine also stated that strong sequential growth in retail, travel, e-commerce, and media/communications was broad-based and sustainable, with new deals priced for appropriate long-term margins.

David Koning inquired about the strong sequential growth in the retail, travel, e-commerce, and communications and media segments, asking if these trends are sustainable or one-off, and if they represent lower-margin businesses.

Answer

CFO Andre Valentine confirmed that the sequential step-ups in these verticals are broad-based and not one-off, driven by clients outside the U.S. and global entertainment/media companies in communications, and travel and e-commerce clients in retail. He emphasized that new wins are secured at appropriate long-term margins, even if some require upfront investment. President and CEO Chris Caldwell added that these verticals are early adopters of IX technology platforms, driving some of the wins, particularly in travel, e-commerce, and consumer electronics.

David Koning also inquired about the significant sequential step-ups in the retail, travel, e-commerce, and communications/media segments, asking if these trends are sustainable or one-off, and if they might create mixed pressure on margins.

Answer

Andre Valentine, CFO, confirmed that the sequential step-ups are broad-based and not one-off, driven by clients outside the U.S. and global entertainment/media companies in comms, and travel/e-commerce clients in retail. He emphasized that new wins are secured at the right long-term margins, even with upfront investment, and should be accretive at full scale. Chris Caldwell, President, CEO & Director, added that IX technology adoption is strong in travel, e-commerce, and consumer electronics, driving some wins.

David Koning asked why Q2 sequential revenue guidance appears normal despite the rise of GenAI and questioned the key drivers behind the strong Q1 margin performance, including Webhelp synergies and operational shifts.

Answer

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.

David Koning from Baird asked if growing consumer frustration with automated systems (bots) is prompting companies to reinvest in human-led customer service outsourcing. He also questioned the potential timeline for Concentrix to return to its target of mid-single-digit revenue growth.

Answer

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.

David Koning (Robert W. Baird & Co.) asked about the interplay between Gen AI and managed services, specifically how the ability to recommend Gen AI work might displace existing managed services, and whether the net effect would push revenue and margins higher over time. He also inquired about the expected duration of the federal business headwind and its anniversary timing.

Answer

Executive Director - IR Alexia Quadrani set the context, with Chief Financial Officer Angie Park stating that both consulting and managed services are expected to grow in the low to mid-single-digit range for FY2026. Chair & CEO Julie Sweet explained that managed services have become strategic, enabling clients to adopt advanced AI faster, not just for cost savings. She noted that savings from AI-driven delivery allow clients to reinvest, expanding Accenture's business. Regarding the federal business headwind, CFO Angie Park confirmed it is expected to anniversary at the end of Q3.

David Koning inquired about the sequential growth of GenAI bookings and the overall demand environment, and also asked about the slower pace of acquisitions and its impact on the full-year contribution guidance.

Answer

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.

David Koning of Robert W. Baird & Co. asked about the sequential growth rate of Generative AI bookings, which appeared to slow slightly. He also questioned the slower pace of acquisitions this year and its potential impact on inorganic growth contributions into the next fiscal year.

Answer

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.

David Koning asked if the sequential decline in Health & Public Services revenue was tied to U.S. Federal weakness and sought confirmation on whether the pricing environment is stabilizing.

Answer

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.

David Koning pointed out that the fiscal Q2 revenue guidance implies a larger-than-typical sequential decline and asked for the reason. He also asked a detailed financial question about the expected sequential increase in interest expense following the recent debt issuance.

Answer

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.

David Koning with Baird inquired about IBEX's exceptional fourth-quarter sequential revenue growth, questioning if it was a one-time event and seeking details on the significant year-over-year increase in the 'other' vertical. He also asked for management's perspective on the impact of Generative AI on the business, specifically whether it's perceived as a threat or a net positive.

Answer

CEO Bob Dechant clarified that the strong Q4 growth was sustainable, driven by significant market share gains within existing clients, expansion into new markets like India, and the accelerated performance of the digital acquisition business. He emphasized that the new logo team also contributed consistently. Regarding Generative AI, Mr. Dechant stated that IBEX has moved from proof-of-concept to full-scale production implementations, viewing AI as an opportunity for automation and to own the entire customer journey through seamless AI-to-human agent integration, which clients find highly valuable and creates a new growth vector for the company.

David Koning asked about the drivers of IBEX's strong sequential revenue growth in Q4 FY2025, questioning its sustainability and the contribution from the 'other' vertical. He also sought management's view on the impact of Generative AI on the business, contrasting industry fears with potential positive outcomes.

Answer

CEO Bob Dechant confirmed the Q4 FY2025 growth was sustainable, driven by market share gains within existing clients, accelerated performance in the digital acquisition business under Head of Investor Relations Michael Darwal, and consistent new client wins. For Generative AI, Mr. Dechant highlighted the shift to full-scale production implementations in Q4, emphasizing IBEX's leadership in integrating AI and human agents across the customer journey, creating a new growth vector.

David Koning with Robert W. Baird & Co. inquired about the unusual sequential revenue growth in Q4, asking if it was sustainable or one-time, particularly noting significant growth in the 'other' vertical. He also sought commentary on the impact of Generative AI (Gen AI) on the business, addressing industry fears versus the long-term positive outlook from automation.

Answer

Robert Dechant, CEO & Director of IBEX, confirmed the Q4 growth was sustainable and not one-time, attributing it to substantial market share gains within their embedded client base, accelerated digital acquisition business under Michael Darwal's leadership, and consistent new logo wins. Regarding Gen AI, Dechant explained that IBEX has transitioned from proof-of-concept to full-scale production implementations in Q4, emphasizing the strategic advantage of owning the entire customer journey from AI agent to human agent, which creates a new growth vector and competitive differentiation for the company.

David Koning asked about the primary drivers behind Ibex's strong revenue growth and the outlook for margins in the second half of the fiscal year.

Answer

CEO Bob Dechant attributed revenue growth to winning new logos and taking market share from competitors, noting that macro demand has stabilized. CFO Taylor Greenwald explained that while gross margins are expected to keep improving, the company is intentionally investing in SG&A for sales and technology, which impacts the full-year adjusted EBITDA margin guidance.

David Koning of Robert W. Baird & Co. asked about the drivers behind the Q1 revenue growth inflection to 4.1% and whether that momentum could be sustained, given the more conservative full-year guidance. He also inquired about the specific factors contributing to the strong performance in the HealthTech vertical.

Answer

CEO Robert Dechant attributed the revenue growth to the scaling of new logos won in fiscal 2024 and significant market share gains within the existing client base, particularly the top 5 clients. Dechant stated that while the goal is to continue this momentum, the full-year guidance remains conservative due to some persistent macroeconomic choppiness. Regarding HealthTech, he confirmed the growth was driven by a combination of new client wins and expanding business with current clients by outperforming competitors.

David Koning of Robert W. Baird & Co. questioned the drivers behind the FY'25 guidance, focusing on the macro environment, market share, and GenAI. He also asked about the sustainability of margin growth and plans for share buybacks.

Answer

CEO Robert Dechant explained that growth from BPO 2.0 clients, a strong new logo engine, and market share gains are expected to drive growth, with AI presenting a new revenue stream. CFO Taylor Greenwald added that margins are projected to improve towards a long-term 15% EBITDA goal, driven by a favorable mix shift to offshore/nearshore services and operating leverage. Dechant confirmed the ongoing commitment to share repurchases alongside increased CapEx and a renewed focus on potential M&A.

David J. Koning of Robert W. Baird & Co. asked for more details on the $16 million revenue headwind from a third-party contract change, including its nature and quarterly timing. He also asked which quarter the gain on asset sales would impact fiscal 2026 EPS.

Answer

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.

David Koning of Robert W. Baird & Co. asked about the drivers for the Payments segment in Q3, noting that it historically sees flat to down sequential growth in that period, and questioned if something different was expected this year.

Answer

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.

David Koning questioned the reason for the deceleration in card processing revenue growth from 8% to 5%. He also asked why interest income has ramped up significantly and whether the current high level is sustainable.

Answer

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.

David Koning noted the massive free cash flow in Q2, which appeared to be a record, and asked why it was so strong, if it was sustainable, and whether Corpay would ever consider providing a formal guidance for it.

Answer

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.

David Koning pointed out the massive free cash flow in Q2, which appeared to be a record, and asked why it was so strong, if it was sustainable, and whether Corpay would ever consider providing a formal guidance for it.

Answer

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.

David Koning from Robert W. Baird & Co. asked about the significant increase in capital expenditures, which has more than doubled, and its relationship to revenue growth. He also had a detailed question about the full-year D&A guidance, which implies a lower run-rate in the second half of the year.

Answer

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.

David Koning from Robert W. Baird & Co. asked for clarification on the Commercial Services growth guidance, questioning if it would fall below high single-digits if total company guidance trends lower. He also commented on the high quality of earnings and asked about a specific bad debt expense mentioned on the call.

Answer

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.

David Koning questioned the apparent deceleration in year-over-year growth for the Commercial Services segment from an adjusted Q4 into the Q1 2025 guidance. He also asked about the level of confidence in the 'flattish' revenue forecast for New York City.

Answer

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.

David Koning asked about the year-over-year decline in the service component of the T2 Parking business and sought clarification on the strong growth contribution from 'other' revenue sources within the Commercial Services segment.

Answer

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.

David Koning inquired about the sequential merchant growth pattern for the remainder of the year, the financial impact of the payroll business divestiture, and the projected share count following buybacks.

Answer

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.

David Koning inquired about the expected sequential revenue pattern for the Merchant segment for the rest of the year, the financial impact of the payroll business divestiture, and the pro forma share count following recent buybacks and the announced ASR.

Answer

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.

David Koning noted that Global Payments' SMB volume growth of 6% held up remarkably well compared to competitors and industry data, and asked what specific dynamics, such as market share gains, might be contributing to this outperformance.

Answer

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.

David Koning asked if the implied Q4 recurring gross profit growth of 21-22% is a good exit rate for 2025 and a reasonable starting point for next year. He also inquired about same-store sales trends in July.

Answer

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.

David Koning of Robert W. Baird & Co. inquired about the deviation from historical seasonality in the Q3 guidance and questioned the recent increase in bad debt expense.

Answer

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.

David Koning inquired about the drivers of the 28% transaction growth, specifically the mix between new and existing clients, and questioned the sequential decline in gross revenue guidance while contribution profit is guided to increase.

Answer

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.

David Koning from Robert W. Baird & Co. questioned the sequential decline in Q1 revenue guidance, which deviates from historical patterns, and inquired about the company's resilience to macroeconomic volatility.

Answer

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.

David Koning asked for clarification on the higher-than-usual network fees in Q3, the reasons for their expected decline in Q4, and the long-term strategy for converting interchange fees from a cost center into a new revenue stream.

Answer

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.

David Koning observed that client incentives have recently grown slower than revenue, a reversal of the long-term trend, and asked if this represents a new normal.

Answer

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.

David Koning asked for a refresh on how FX volatility impacts the transaction processing assessments line and whether recent trends could benefit the transaction yield going forward.

Answer

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.

David Koning noted that employee growth has outpaced revenue growth and asked when the company expects to see efficiencies that allow revenue to grow faster than headcount.

Answer

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.

David Koning sought confirmation that Q4 sequential growth is returning to normal as headwinds pass and asked if the U.S. GAAP switch impacted Q3 cash flow or if non-recurring costs in FY25 would benefit FY26 margins.

Answer

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.

David Koning of Baird asked which verticals are expected to compensate for the anticipated revenue decline in the Healthcare segment and drive growth in the upcoming quarters. He also inquired about the significant year-over-year growth from WNS's largest client and its sustainability.

Answer

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.

David Koning inquired about the strong sequential growth in the payments segment yield, asking if it signals less supplier pushback and whether this yield growth is sustainable.

Answer

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.

David Koning of Robert W. Baird & Co. questioned the lowered revenue guidance for the second half of the year, asking for details on the impact of macro headwinds and lower-than-expected payment transaction yield.

Answer

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.

David Koning asked about the future trajectory of AvidXchange's total transaction yield, questioning if its strong growth will continue to step up each quarter given various puts and takes.

Answer

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.

David Koning questioned the drivers of the strong sequential growth in Banking recurring revenue in Q3 and asked if the implied Q4 net interest expense is a good run-rate for 2025.

Answer

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.

David Koning asked about the revenue dynamics with TELUS Corporation, noting a tough Q4 comparison and questioning if another sequential increase is expected this year.

Answer

CFO Gopi Chande stated that the current plan assumes stable revenue from TELUS throughout the rest of the year, without a significant sequential pickup in Q4. She explained that while they maintain routine CX work, growth is now driven by the diversification of services into areas like TELUS Health and digital transformation, which is expected to sustain the current revenue level rather than cause a large seasonal spike.

Asked about the path back to higher margins and whether the recent increase in client count is a positive leading indicator.

Answer

Executives explained that 2023 margins were hit by revenue decline and mix shift, but they are focused on improving utilization and efficiency to drive margin expansion in 2024 and beyond, though high-teens margins are unlikely this year. The growth in client count is a positive result of sales investments, though initial deal sizes are smaller.