Global Payments Reports First Quarter Earnings

October 2, 2014

 

Increases Annual Fiscal 2015 Revenue, Margin and Cash EPS Outlook

ATLANTA--(BUSINESS WIRE)-- Global Payments Inc. (NYSE: GPN) today announced results for its fiscal first quarter ended August 31, 2014.

"We are delighted with our performance for the first quarter, which represents an excellent start to our 2015 fiscal year and further demonstrates the success of our focus on solid business execution and disciplined capital deployment," said Jeff Sloan, Chief Executive Officer. "We continue to expand our direct distribution globally and are enthusiastic about our agreements to acquire Ezidebit and Fidelity National Information Services' gaming business. Both of these transactions underscore our strategy to drive direct sales growth in attractive markets, deliver innovative products and solutions and leverage technological advantages."

First Quarter 2015 Summary

  • Revenues grew 12% to $704.9 million, compared to $629.7 million in the first quarter of fiscal 2014.
  • Cash diluted earnings per share1 grew 22% to $1.22, compared to $1.00 in the first quarter of fiscal 2014.
  • GAAP diluted earnings per share were $1.10, compared to $0.87 in the first quarter of 2014.

2015 Outlook

Cameron Bready, Executive Vice President and Chief Financial Officer, stated, "As a result of our strong first quarter performance and the anticipated closing of the Ezidebit transaction during our fiscal second quarter, we are raising our annual fiscal 2015 revenue outlook to $2.74 billion to $2.79 billion, or 7% to 9% percent growth. In addition we are increasing our outlook for annual fiscal 2015 diluted earnings per share on a cash basis to a range of $4.65 to $4.75, reflecting growth of 13% to 15% over fiscal 2014, and annual fiscal 2015 GAAP diluted earnings per share is expected to be in the range of $3.89 to $3.99. We also now expect annual fiscal 2015 core cash operating margins to expand by as much as 40 basis points."

First Quarter 2015 Dividend

Global Payments' board of directors approved a fiscal 2015 first quarter dividend of $0.02 per common share payable November 28, 2014 to shareholders of record as of November 14, 2014.

Conference Call

Global Payments' management will host a conference call today, October 2, 2014 at 8:30 a.m. ET to discuss financial results and business highlights. Callers may access the conference call via the investor relations page of the company's website at www.globalpaymentsinc.com; or callers in North America may dial 877-674-6428 and callers outside North America may dial 970-315-0457. A replay of the call will be archived on the company's website within two hours of the live call.

_________________________

1See Schedule 2 for cash earnings and Schedules 6 and 7 for reconciliations of historical cash earnings to GAAP.

About Global Payments

Global Payments Inc. is one of the largest worldwide providers of payment solutions for merchants, value added resellers, enterprise software providers, financial institutions, government agencies, multi-national corporations and independent sales organizations located throughout North America, Brazil, Europe and the Asia-Pacific region. Global Payments, a Fortune 1000 company, offers a comprehensive line of solutions and services for credit and debit cards, business-to-business purchasing cards, gift cards, electronic check conversion and check guarantee, verification and recovery including electronic check services, as well as terminal management. Visit www.globalpaymentsinc.com for more information about the company and its services.

This announcement and comments made by Global Payments' management may contain certain forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including revenue and earnings estimates and management's expectations regarding future events and developments, are forward-looking statements and are subject to significant risks and uncertainties. Important factors that may cause actual events or results to differ materially from those anticipated by such forward-looking statements include our ability to safeguard our data; increased competition from non-traditional competitors; our ability to update our products and services in a timely manner; potential systems interruptions or failures; software defects or undetected errors; our ability to maintain Visa and MasterCard registration and financial institution sponsorship; our reliance on financial institutions to provide clearing services in connection with our settlement activities; our potential failure to comply with card network requirements; increased attrition of merchants, referral partners or independent sales organizations; our ability to increase our share of existing markets and expand into new markets; unanticipated increases in chargeback liability; increases in credit card network fees; changes in laws, regulations or network rules or interpretations thereof; foreign currency exchange and interest rate risks; political, economic and regulatory changes in the foreign countries in which we operate; future performance, integration and conversion of acquired operations; loss of key personnel; and other risks detailed in our SEC filings, including the most recently filed Annual Report on Form 10-K. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.

SCHEDULE 1
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
             
             
    Three Months Ended August 31,    
    2014   2013  

%
Change

    (unaudited)    
             
Revenues   $ 704,895     $ 629,685     11.9 %
             
Operating expenses:            
Cost of service     259,839       230,745     12.6 %
Sales, general and administrative     320,658       291,556     10.0 %
      580,497       522,301      
             
Operating income     124,398       107,384     15.8 %
             
Other income (expense):            
Interest and other income     1,192       3,338     (64.3 )%
Interest and other expense     (11,010 )     (7,879 )   39.7 %
      (9,818 )     (4,541 )   116.2 %
             
Income before income taxes     114,580       102,843     11.4 %
Provision for income taxes     (30,146 )     (31,135 )   (3.2 )%
Net income     84,434       71,708     17.7 %
Less: Net income attributable to noncontrolling interests, net of income tax     (9,068 )     (7,065 )   28.4 %
Net income attributable to Global Payments   $ 75,366     $ 64,643     16.6 %
             
             
Earnings per share attributable to Global Payments:            
Basic   $ 1.11     $ 0.88     26.1 %
Diluted   $ 1.10     $ 0.87     26.4 %
             
Weighted average shares outstanding:            
Basic     68,146       73,765      
Diluted     68,617       74,289      
                     
SCHEDULE 2
CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
           
           
  Three Months Ended August 31,    
  2014   2013  

%
Change

           
Revenues $ 704,895     $ 629,685     11.9 %
           
Operating expenses:          
Cost of service   241,985       215,773     12.1 %
Sales, general and administrative   323,599       290,060     11.6 %
    565,584       505,833     11.8 %
           
Operating income   139,311       123,852     12.5 %
           
Other income (expense):          
Interest and other income   1,192       3,338     (64.3 )%
Interest and other expense   (11,010 )     (7,879 )   39.7 %
    (9,818 )     (4,541 )   116.2 %
           
Income before income taxes   129,493       119,311     8.5 %
Provision for income taxes   (35,430 )     (36,686 )   (3.4 )%
Net income   94,063       82,625     13.8 %
Less: Net income attributable to noncontrolling interests, net of income tax   (10,303 )     (8,436 )   22.1 %
Net income attributable to Global Payments $ 83,760     $ 74,189     12.9 %
           
Earnings per share attributable to Global Payments:          
Basic $ 1.23     $ 1.01     21.8 %
Diluted $ 1.22     $ 1.00     22.0 %
           
Weighted average shares outstanding:          
Basic   68,146       73,765      
Diluted   68,617       74,289      
           
See Schedule 6 for a reconciliation of cash earnings to GAAP.
           
SCHEDULE 3
SEGMENT INFORMATION
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
                         
                         
    Three Months Ended August 31,        
    2014   2013   % Change
    GAAP  

Cash
Earnings

  GAAP  

Cash
Earnings

  GAAP  

Cash
Earnings

                         

Revenues:

                       
United States   $ 414,042     $ 414,042     $ 363,833     $ 363,833     13.8 %   13.8 %
Canada     89,965       89,965       86,672       86,672     3.8 %   3.8 %
North America merchant services     504,007       504,007       450,505       450,505     11.9 %   11.9 %
                         
Europe     162,787       162,787       143,188       143,188     13.7 %   13.7 %
Asia-Pacific     38,101       38,101       35,992       35,992     5.9 %   5.9 %

International merchant services

    200,888       200,888       179,180       179,180     12.1 %   12.1 %
                         
Total revenues   $ 704,895     $ 704,895     $ 629,685     $ 629,685     11.9 %   11.9 %
                         

Operating income (loss) for segments:

                       
North America merchant services   $ 77,937     $ 89,315     $ 69,699     $ 79,404     11.8 %   12.5 %
International merchant services     73,602       77,137       61,541       68,757     19.6 %   12.2 %
Corporate     (27,141 )     (27,141 )     (23,856 )     (24,309 )   (13.8 )%   (11.7 )%
Operating income   $ 124,398     $ 139,311     $ 107,384     $ 123,852     15.8 %   12.5 %
                         
See Schedule 7 for reconciliation of cash earnings segment information to GAAP.
                         
SCHEDULE 4
CONSOLIDATED BALANCE SHEETS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except share data)
         
         
    August 31, 2014   May 31, 2014
    (unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents   $ 595,884     $ 581,872  
Accounts receivable, net of allowances for doubtful accounts of $531 and $401, respectively     206,641       214,574  
Claims receivable, net     758       809  
Settlement processing assets     1,141,608       780,917  
Inventory     5,660       6,636  
Deferred income taxes     12,793       12,963  
Prepaid expenses and other current assets     43,380       45,673  
Total current assets     2,006,724       1,643,444  
Goodwill     1,324,374       1,337,285  
Other intangible assets, net     511,265       535,173  
Property and equipment, net     363,415       369,753  
Deferred income taxes     100,813       101,928  
Other     32,765       31,067  
Total assets   $ 4,339,356     $ 4,018,650  
         
LIABILITIES AND EQUITY        
Current liabilities:        
Lines of credit   $ 652,157     $ 440,128  
Current portion of long-term debt     31,250       17,677  
Accounts payable and accrued liabilities     248,639       290,106  
Settlement processing obligations     634,061       451,317  
Income taxes payable     13,390       12,390  
Total current liabilities     1,579,497       1,211,618  
Long-term debt     1,388,750       1,376,002  
Deferred income taxes     209,941       209,099  
Other long-term liabilities     90,655       89,132  
Total liabilities     3,268,843       2,885,851  
         
Commitments and contingencies        
Equity:        
Preferred stock, no par value; 5,000,000 shares authorized and none issued            
Common stock, no par value; 200,000,000 shares authorized; 67,672,753 issued and outstanding at August 31, 2014 and 68,845,643 issued and outstanding at May 31, 2014            
Paid-in capital     139,141       183,023  
Retained earnings     822,461       815,980  
Accumulated other comprehensive loss     (19,351 )     (1,776 )
Total Global Payments shareholders' equity     942,251       997,227  
Noncontrolling interests     128,262       135,572  
Total equity     1,070,513       1,132,799  
Total liabilities and equity   $ 4,339,356     $ 4,018,650  
                 
SCHEDULE 5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
       
       
  Three Months Ended August 31,
  2014   2013
Cash flows from operating activities:      
Net income $ 84,434     $ 71,708  
Adjustments to reconcile net income to net cash used in operating activities:      
Depreciation and amortization of property and equipment   16,712       13,981  
Amortization of acquired intangibles   17,854       14,393  
Share-based compensation expense   4,066       4,788  
Provision for operating losses and bad debts   4,308       5,234  
Deferred income taxes   3,705       5,784  
Other, net   (755 )     (1,891 )
Changes in operating assets and liabilities, net of the effects of acquisitions:      
Accounts receivable   7,933       802  
Claims receivable   (2,742 )     (3,864 )
Settlement processing assets and obligations, net   (179,462 )     (115,383 )
Inventory   981       4,448  
Prepaid expenses and other assets   644       16,772  
Accounts payable and other accrued liabilities   (22,151 )     (40,207 )
Income taxes payable   1,000       248  
Net cash used in operating activities   (63,473 )     (23,187 )
Cash flows from investing activities:      
Business, intangible and other asset acquisitions, net of cash acquired   (4,773 )      
Capital expenditures   (18,157 )     (20,263 )
Principal collections on financing receivables   219       665  
Net proceeds from sales of investments and business   10,528       990  
Net cash used in investing activities   (12,183 )     (18,608 )
Cash flows from financing activities:      
Net borrowings on short-term lines of credit   212,029       141,026  
Proceeds from issuance of long-term debt   390,000       440,000  
Principal payments under long-term debt   (363,679 )     (331,515 )
Repurchase of common stock   (132,283 )     (143,700 )
Proceeds from stock issued under share-based compensation plans   12,588       3,998  
Common stock repurchased - share-based compensation plans   (15,105 )     (4,604 )
Tax benefit from share-based compensation plans   3,154       1,213  
Distributions to noncontrolling interests   (11,249 )     (12,482 )
Dividends paid   (1,370 )     (1,456 )
Net cash provided by financing activities   94,085       92,480  
Effect of exchange rate changes on cash   (4,417 )     (5,268 )
Increase in cash and cash equivalents   14,012       45,417  
Cash and cash equivalents, beginning of period   581,872       680,470  
Cash and cash equivalents, end of period $ 595,884     $ 725,887  
               
SCHEDULE 6
RECONCILIATION OF CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
                 
    Three Months Ended August 31, 2014
   

GAAP

 

Other1

 

Cash Earnings
Adjustments2

 

Cash
Earnings

Revenues   $ 704,895     $     $     $ 704,895  
Operating expenses:                
Cost of service     259,839             (17,854 )     241,985  
Sales, general and administrative     320,658       2,941             323,599  
      580,497       2,941       (17,854 )     565,584  
                 
Operating income     124,398       (2,941 )     17,854       139,311  
Other income (expense):                
Interest and other income     1,192                   1,192  
Interest and other expense     (11,010 )                 (11,010 )
      (9,818 )                 (9,818 )
                 
Income before income taxes     114,580       (2,941 )     17,854       129,493  
Provision for income taxes     (30,146 )     588       (5,872 )     (35,430 )
Net income     84,434       (2,353 )     11,982       94,063  
Less: Net income attributable to noncontrolling interests, net of income tax     (9,068 )           (1,235 )     (10,303 )
Net income attributable to Global Payments   $ 75,366     $ (2,353 )   $ 10,747     $ 83,760  
                 
Diluted shares     68,617               68,617  
Diluted earnings per share   $ 1.10     $ (0.03 )   $ 0.15     $ 1.22  
                 
                 
    Three Months Ended August 31, 2013
   

GAAP

  Other1  

Cash Earnings
Adjustments2

 

Cash
Earnings

Revenues   $ 629,685     $     $     $ 629,685  
Operating expenses:                
Cost of service     230,745       (579 )     (14,393 )     215,773  
Sales, general and administrative     291,556       (1,496 )           290,060  
      522,301       (2,075 )     (14,393 )     505,833  
                 
Operating income     107,384       2,075       14,393       123,852  
Other income (expense):                
Interest and other income     3,338                   3,338  
Interest and other expense     (7,879 )                 (7,879 )
      (4,541 )                 (4,541 )
                 
Income before income taxes     102,843       2,075       14,393       119,311  
Provision for income taxes     (31,135 )     (789 )     (4,762 )     (36,686 )
Net income     71,708       1,286       9,631       82,625  
Less: Net income attributable to noncontrolling interests, net of income tax     (7,065 )           (1,371 )     (8,436 )
Net income attributable to Global Payments   $ 64,643     $ 1,286     $ 8,260     $ 74,189  
                 
Diluted shares     74,289               74,289  
Diluted earnings per share   $ 0.87     $ 0.02     $ 0.11     $ 1.00  
                                 
1For the three months ended August 31, 2014, represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia. For the three months ended August 31, 2013, represents one-time charges primarily related to employee termination benefits and resolution of a contract related contingency.
   
2Represents adjustments to cost of service to exclude acquisition intangible amortization expense and the related income tax benefit.
   
We supplemented our reporting of income and the related earnings per share information determined in accordance with GAAP by reporting income and the related earnings per share for the three months ended August 31, 2014 and 2013 on a "cash earnings" basis in this earnings release as a measure to help evaluate performance. We calculated income and earnings per share on a cash basis by excluding amounts related to a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia and acquisition intangible amortization. We exclude these charges in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations. Our income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, income and earnings per share determined in accordance with GAAP. Our measures of income and earnings per share on a cash earnings basis reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.
SCHEDULE 7
RECONCILIATION OF CASH EARNINGS SEGMENT INFORMATION TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
                                 
                                 
  Three Months Ended August 31,
  2014     2013
  GAAP   Other1  

Cash Earnings
Adjustments2

 

Cash
Earnings

    GAAP   Other1  

Cash Earnings
Adjustments2

 

Cash
Earnings

Revenues:                                
United States $ 414,042     $     $   $ 414,042       $ 363,833     $     $   $ 363,833  
Canada   89,965                 89,965         86,672                 86,672  
North America merchant services   504,007                 504,007         450,505                 450,505  
                                 
Europe   162,787                 162,787         143,188                 143,188  
Asia-Pacific   38,101                 38,101         35,992                 35,992  
International merchant services   200,888                 200,888         179,180                 179,180  
                                 
Total revenues $ 704,895     $     $   $ 704,895       $ 629,685     $     $   $ 629,685  
                                 
Operating income (loss) for segments:                                
North America merchant services   77,937             11,378     89,315         69,699       2,518       7,187     79,404  
International merchant services   73,602       (2,941 )     6,476     77,137         61,541       10       7,206     68,757  
Corporate   (27,141 )               (27,141 )       (23,856 )     (453 )         (24,309 )
Operating income $ 124,398     $ (2,941 )   $ 17,854   $ 139,311       $ 107,384     $ 2,075     $ 14,393   $ 123,852  
                                 

1 For the three months ended August 31, 2014, represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia. For the three months ended August 31, 2013, represents one-time charges primarily related to employee termination benefits and resolution of a contract related contingency.

2 Represents acquisition intangible amortization expense.

SCHEDULE 8
OUTLOOK SUMMARY
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In billions, except per share data)
               
   

Fiscal 2014
Actual

 

Fiscal 2015
Outlook

   

% Change
FY14

               

Revenue Outlook

             
Total Revenues   $ 2.55     $2.74 to $2.79     7% to 9%
               

EPS Outlook

             
Cash EPS   $ 4.12     $4.65 to $4.75     13% to 15%
Acquisition-related intangibles assets, non-recurring items and processing system intrusion1     (0.75 )  

(0.76

)

 

1%
GAAP Diluted EPS   $ 3.37     $3.89 to $3.99     15% to 18%
                   
We supplemented our reporting of income and the related earnings per share information determined in accordance with GAAP by reporting income and the related earnings per share for the fiscal years 2015 and 2014 on a "cash earnings" basis in this earnings release as a measure to help evaluate performance. We calculated income and earnings per share on a cash basis by excluding amounts related to the processing system intrusion, acquisition intangible amortization, acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, a nonrecurring charge associated with our retained interest in Brazil, non-cash losses from the retirement of fixed assets, employee termination benefits and resolution of a contract related contingency and an adjustment to the costs associated with the debt refinancing. We exclude these charges in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations. Our income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, income and earnings per share determined in accordance with GAAP. Our measures of income and earnings per share on a cash earnings basis reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.
   

1 Fiscal 2015 reflects $0.72 of acquisition-related intangibles amortization and $0.04 of one-time charges. Fiscal 2014 reflects acquisition-related intangibles amortization of $0.51, processing system intrusion of ($0.07), and non-recurring items of $0.31. Other non-recurring items include acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, a credit related to the sale of an interest in our Brazil business and a subsequent charge associated with our retained interest, cost associated with the debt refinancing we completed in February 2014, non-cash losses from the retirement of fixed assets, charges related to employee termination benefits and HSBC's share of dividends declared by Global Payments Asia-Pacific.

 

Global Payments Inc.
Investor contact:
Jane Elliott, 770-829-8234
investor.relations@globalpay.com
or
Media contact:
Amy Corn, 770-829-8755
media.relations@globalpay.com

Source: Global Payments Inc.

 

 

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