The goal of this analysis is to ascertain from earning call transcripts where strength in Market Position is driving positive Margin results. Our results show that Information Technology (IT) stood out for both metrics.

Doug DeMuth
May 15, 2020

Key Driver Series: Using Market Position and Margin to Identify Opportunity Across Sectors

Key Driver Series: Using Market Position and Margin to Identify Opportunity Across Sectors

Today we launch the Amenity Key Driver series of thought leadership, where we will be using our NLP Platform and Key Driver framework to analyze earning call transcripts with the goal of identifying interesting opportunities in the equity markets.  

To kick off the series we used Amenity’s Key Drivers dashboard within the Insights Platform to produce a second quarter-to-date Sector Scorecard designed to identify the companies best positioned to excel in today’s tumultuous economy. To do this we took two of Amenity’s Key Drivers:  Market Position, which is designed to capture sentiment related to pricing power as well as competitive positioning; and Margin score, which captures sentiment related to margins. Our goal is to ascertain where strength in Market Position is driving positive Margin results.

Key Driver Series: Market Position and Margin Scores

Our hypothesis is that companies scoring highly in both drivers simultaneously will further separate themselves as leading players within their respective industries, and that these companies are likely to outperform their peers. In examining the results Information Technology (IT) stood out as the top sector, having the highest Market Position score coinciding with the 2nd strongest Margin score:

We added the Market Position and Margin scores together for the IT sector, which yielded a top ten list of the following names:

Global Payments, Inc.

Scoring highest was Global Payments. Considering the global economic slowdown, the company managed a very nice quarter. Adjusted for the merger with Total Systems Services, Inc. (TSYS), revenue increased:

Paul Michael Todd, CFO
On a combined basis, our revenue increased slightly from the prior year, including a roughly 50 basis point headwind from the impact of negative foreign currency exchange rates.

Global Payments is one of a handful of large, leading players in the payments technology space. Operating in a relatively mature industry where organic revenue growth can be a challenging endeavor, the company has actively pursued the consolidation of market position. The company’s merger with Total Systems Services, Inc. (TSYS) last year exemplifies this strategy, with revenue enhancement being one of a few key goals:

Jeffrey Steven Sloan, CEO
Our new partnership with Synovus confirms the wisdom of the Global Payments and TSYS merger. We do not believe that either company individually would have been positioned to win this business. We already launched our partnership with Synovus on April 1.

The company was prolific in generating new business this quarter:

Cameron M. Bready, President and COO
We have enabled several of our large retail customers to accelerate their shift to e-commerce and sign new e-commerce partnerships with two large multinational health and wellness companies.
Jeffrey Steven Sloan, CEO
Our partner software business, which we recently rebranded as Global Payments Integrated launched 30 new partners in the first few months of 2020. We are tracking well ahead of where we were this time in 2019…

As with most everything else, COVID-19 is a headwind for Global Payments. However, like many companies with size and scale such as it, the strategy of being a consolidator is unlikely to change. In general, we believe that the COVID-19 pandemic will likely result in furthering the theme of the strong getting stronger. We believe that Global Payments falls into this category:

Jeffrey Steven Sloan, CEO
The competitive landscape will no doubt change as a result of this crisis, and we believe that we will capitalize on those changes and continue to gain share organically and through further consolidation.

Moving to margin extraction sentiment, we also found positive results:

Paul Michael Todd, CFO
Adjusted operating margins expanded an impressive 300 basis points to 39% for the quarter and well above the 250 basis point annual expansion target we mentioned on our last call. As a result, we were able to deliver strong adjusted earnings per share growth of 18% to $1.58, which also includes a roughly 100 basis point impact from adverse foreign currency exchange rate movements.
Paul Michael Todd, CFO
So as we go throughout the quarters, throughout the rest of this year, you'll see margin expansion in Issuer, you'll see margin expansion in Business and Consumer.

Finally, the following extraction from the Coronavirus Tracker dashboard in the Insights Platform touches on elements that relate to both Key Drivers and blend into the larger picture:

Jeffrey Steven Sloan, CEO
Our powerful combination with TSYS provides us with multiple levers to mitigate headwinds that we may face from the pandemic. We made significant strides on our integration this quarter, and we continue to anticipate delivering at least $125 million in annual run rate revenue synergies and at least $350 million in annual run rate expense synergies within three years of the merger close.

To us, Global Payments’ strategy of consolidating a maturing industry has been effective in establishing a strong market position. This has driven revenue enhancement and cost-efficiency, which has been effective in producing improved margin outcomes.

ServiceNow, Inc.

ServiceNow is another example of strength in both Market Position and Margin scores. The company signed 37 deals over $1mm in the first quarter, which was up 48% over the prior year. Sample extractions from CEO Willaim R. McDermott are sourced from their most recent earnings conference call:

William R. McDermott, CEO
Our Now cloud went live in Seoul, South Korea in March, where we signed two new customers representing major brands. We also saw strong deals completed in EMEA, despite the challenging environment.
William R. McDermott, CEO
16 of our top deals included multiple IT products. Chevron, for example, is realizing the power of the Now Platform by using multiple ServiceNow products across their business to drive productivity. They're now using our suite of IT products, and they deployed our HR products to their entire 44,000-person workforce.

ServiceNow showed significant improvement in gross margin in the first quarter. The company is also somewhat rare in that not only did they not pull their guidance, but they have increased it. On top of an expectation of nearly 30% revenue growth in 2020, margins will also increase - the below extractions are from CFO Gina M. Mastantuono:

Gina M. Mastantuono, CFO
We expect a 23% operating margin, up 500 basis points year-over-year due to a reduction in travel expenses and the transition of Knowledge to a digital experience.
Gina M. Mastantuono, CFO
We continue to expect 2020 subscription gross margin of 86%, and we are raising our guidance for full year 2020 operating margins of 23%. This reflects savings from reduced travel, lower G&A hiring, and the transition of Knowledge 2020 to digital experience. Looking into next year, we expect our investment in these areas to return to previous levels.

It will be interesting to observe how much of ServiceNow’s margin improvement will come from things such as travel and G&A expense reductions, and also where margins go as these expenses return.

We will investigate this and other topics further as we continue with the Key Driver series.

Interested running these types of analyses with our platform?

Request a Key Drivers demo today to find out how you can analyze earnings call transcripts and other financial documents with our text analytics platform. Spot outliers, identify critical insights, and understand key drivers.

About Amenity

Amenity Analytics is the industry leader in providing insights from unstructured text by using Natural Language Processing (NLP) assisted by Artificial Intelligence (AI) and Machine Learning (ML). Amenity’s NLP system is a sector-agnostic, language-dependent tool for quantitative text analysis that is deployed across the financial services industry and beyond.

This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.

Copyright ©2020 Amenity Analytics. 

Get even more Insights with our Newsletter

Stay informed of market impacting events through the lens of NLP and learn about our latest offerings.