Global Payments Reports First Quarter Earnings and Increases Fiscal 2017 Outlook

October 5, 2016

 

ATLANTA--(BUSINESS WIRE)-- Global Payments Inc. (NYSE: GPN) today announced results for its fiscal first quarter ended August 31, 2016.

"Our fiscal 2017 is off to a terrific start, with organic growth accelerating sequentially across our key markets in the first quarter," said Jeff Sloan, Chief Executive Officer. "Heartland continued its strong growth momentum in the United States. Our businesses in Europe performed exceptionally well, and our Asia business produced its highest rate of organic revenue growth in several quarters." Sloan concluded, "We also could not be more pleased with our Heartland integration efforts, which continue to track ahead of our expectations."

First Quarter Fiscal 2017 Summary

  • GAAP revenues were $939.5 million, compared to $748.8 million in the first quarter of fiscal 2016; diluted earnings per share were $0.55 compared to $0.66 in the prior year; and operating margin was 12.9% compared to 18.4% in the first quarter of fiscal 2016.
  • Adjusted net revenue grew 52% to $817.3 million, compared to $537.0 million in the first quarter of fiscal 2016. On a constant currency basis, adjusted net revenue grew 55%.
  • Adjusted earnings per share grew 9% to $0.86, compared to $0.79 in the first quarter of fiscal 2016. On a constant currency basis, adjusted earnings per share grew 15%.
  • Adjusted operating margin was 29.5%, which includes the impact of Heartland. On a constant currency basis, adjusted operating margin was 29.9%.

Fiscal 2017 Outlook

"As a result of our strong first quarter performance and progress with Heartland integration efforts, we are increasing our outlook for fiscal 2017 adjusted earnings per share to a range of $3.45 to $3.55, reflecting growth of 16% to 19% over fiscal 2016," stated Cameron Bready, Executive Vice President and Chief Financial Officer. "We also now expect adjusted operating margin for fiscal 2017 to expand by as much as 50 basis points. We continue to expect adjusted net revenue to range from $3.2 billion to $3.3 billion, or growth of 47% to 52% over fiscal 2016."

Capital Allocation

Global Payments' Board of Directors approved a quarterly dividend of $0.01 per share payable November 25, 2016 to shareholders of record as of November 11, 2016.

Conference Call

Global Payments' management will host a conference call today, October 5, 2016 at 8:00 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.

Non-GAAP Financial Measures

Global Payments supplemented revenues, income and earnings per share information determined in accordance with GAAP by providing those measures on an adjusted basis in this earnings release to assist with evaluating performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of our operations.

Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release.

About Global Payments

Global Payments Inc. (NYSE: GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our technologies, partnerships and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world.

Headquartered in Atlanta, Georgia with more than 8,500 employees worldwide, Global Payments is a member of the S&P 500 with merchants and partners in 30 countries throughout North America, Europe, the Asia-Pacific region and Brazil. For more information about Global Payments, our Service. Driven. Commerce brand and our technologies, please visit www.globalpaymentsinc.com.

Forward-Looking Statements

This announcement and comments made by Global Payments' management during the conference call 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 potential failure to safeguard our data; 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 merchant, referral partner or ISO attrition; our ability to increase our share of existing markets and expand into new markets; political, economic and regulatory changes in the foreign countries in which we operate; system interruptions in service; increases in credit card network fees; future performance, integration and conversion of acquired operations; and other risk factors presented in our most recent Annual Report on Form 10-K and any subsequent SEC filings, which we advise you to review. 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,

2016

   

August 31,

2015

    % Change  
                   
Revenues     $ 939,492       $ 748,796       25.5 %
                   
Operating expenses:                  
Cost of service     462,626       272,666       69.7 %
Selling, general and administrative     355,760       338,358       5.1 %
      818,386       611,024       33.9 %
                   
Operating income     121,106       137,772       (12.1 )%
                   
Interest and other income     42,473       1,142       NM  
Interest and other expense     (43,077 )     (13,243 )     225.3 %
      (604 )     (12,101 )     (95.0

)%

                   
Income before income taxes     120,502       125,671       (4.1 )%
Provision for income taxes     (28,044 )     (32,623 )     (14.0 )%
Net income     92,458       93,048       (0.6 )%
Less: Net income attributable to noncontrolling interests, net of income tax     (7,365 )     (6,402 )     15.0 %
Net income attributable to Global Payments     $ 85,093       $ 86,646       (1.8 )%
                   
Earnings per share attributable to Global Payments1:                  
Basic     $ 0.55       $ 0.66       (16.7 )%
Diluted     $ 0.55       $ 0.66       (16.7 )%
                   
Weighted-average shares outstanding1:                  
Basic     153,901       130,328        
Diluted     154,875       131,146        
                       

1 Earnings per share data and weighted-average shares outstanding for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

 
NM - Not meaningful.
                       
       
SCHEDULE 2
NON-GAAP FINANCIAL MEASURES (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

       
      Three Months Ended
     

August 31,

2016

   

August 31,

2015

    % Change
     

 

           
Adjusted net revenue     $ 817,255       $ 536,953       52.2 %
                   
Adjusted operating income     $ 240,718       $ 163,566       47.2 %
                   
Adjusted net income     $ 133,682       $ 103,025       29.8 %
                   
Adjusted EPS1:     $ 0.86       $ 0.79       8.9 %
                             
 

1 Earnings per share data and weighted-average shares outstanding for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

 

2 See Schedule 6 for a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure and Schedule 8 for a discussion of non-GAAP financial measures.

                             
                   
SCHEDULE 3
SEGMENT INFORMATION (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

                   
      Three Months Ended            
      August 31, 2016     August 31, 2015     % Change
      GAAP     Non-GAAP1     GAAP     Non-GAAP1     GAAP     Non-GAAP1
                                     
Revenues:                                    
North America     $ 711,765       $ 608,671       $ 530,857       $ 340,431       34.1 %     78.8 %
Europe     169,565       150,422       168,357       146,940       0.7 %     2.4 %
Asia-Pacific     58,162       58,162       49,582       49,582       17.3 %     17.3 %
      $ 939,492       $ 817,255       $ 748,796       $ 536,953       25.5 %     52.2 %
                                     
Operating income:                                    
North America     $ 105,700       $ 178,361       $ 83,513       $ 96,966       26.6 %     83.9 %
Europe     65,539       72,113       72,733       77,031       (9.9 )%     (6.4 )%
Asia-Pacific     14,022       16,490       12,233       13,810       14.6 %     19.4 %
Corporate     (64,155 )     (26,246 )     (30,707 )     (24,241 )     108.9 %     8.3 %
      $ 121,106       $ 240,718       $ 137,772       $ 163,566       (12.1 )%     47.2 %
                                                         

1 See Schedule 7 for a reconciliation of adjusted net revenue and adjusted operating income by segment to the most comparable GAAP measures and Schedule 8 for a discussion of non-GAAP financial measures.

                                                         
             
SCHEDULE 4
UNAUDITED CONSOLIDATED BALANCE SHEETS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except share data)

             
      August 31, 2016     May 31, 2016
             
ASSETS            
Current assets:            
Cash and cash equivalents     $ 977,776       $ 1,044,728  
Accounts receivable, net of allowances for doubtful accounts of $326 and $353, respectively     286,645       281,612  
Claims receivable, net of allowances for doubtful accounts of $5,106 and $4,868, respectively     7,974       6,799  
Settlement processing assets     1,105,470       1,336,326  
Prepaid expenses and other current assets     206,964       181,848  
Total current assets     2,584,829       2,851,313  
Goodwill     4,849,015       4,829,405  
Other intangible assets, net     2,211,954       2,264,708  
Property and equipment, net     512,079       493,678  
Deferred income taxes     20,921       22,719  
Other     58,982       48,129  
Total assets     $ 10,237,780       $ 10,509,952  
             
LIABILITIES AND EQUITY            
Current liabilities:            
Settlement lines of credit     $ 332,078       $ 378,436  
Current portion of long-term debt     182,012       135,542  
Accounts payable and accrued liabilities     702,277       696,414  
Settlement processing obligations     1,015,805       1,220,315  
Total current liabilities     2,232,172       2,430,707  
Long-term debt     4,289,666       4,379,744  
Deferred income taxes     724,023       744,862  
Other noncurrent liabilities     86,707       77,235  
Total liabilities     7,332,568       7,632,548  
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; 153,684,060 issued and outstanding at August 31, 2016 and 154,421,585 issued and outstanding at May 31, 2016            
Paid-in capital     1,913,164       1,976,715  
Retained earnings     1,099,026       1,015,811  
Accumulated other comprehensive loss     (265,511 )     (246,050 )
Total Global Payments shareholders' equity     2,746,679       2,746,476  
Noncontrolling interests     158,533       130,928  
Total equity     2,905,212       2,877,404  
Total liabilities and equity     $ 10,237,780       $ 10,509,952  
                     
       
SCHEDULE 5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

       
      Three Months Ended
      August 31, 2016     August 31, 2015
Cash flows from operating activities:            
Net income     $ 92,458       $ 93,048  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization of property and equipment     22,657       17,909  
Amortization of acquired intangibles     80,529       20,848  
Share-based compensation expense     7,619       6,467  
Provision for operating losses and bad debts     9,626       4,263  
Deferred income taxes     (20,861 )     3,584  
Gain on sale of investments     (41,150 )      
Other, net     8,855       1,333  
Changes in operating assets and liabilities, net of the effects of acquisitions:            
Accounts receivable     (7,726 )     (7,512 )
Claims receivable     (7,097 )     (12,261 )
Settlement processing assets and obligations, net     30,409       402,676  
Prepaid expenses and other assets     (50,498 )     (18,114 )
Accounts payable and other liabilities     30,846       1,151  
Net cash provided by operating activities     155,667       513,392  
Cash flows from investing activities:            
Business acquisitions, net of cash acquired     (34,563 )     (241,530 )
Capital expenditures     (41,381 )     (16,858 )
Proceeds from sale of investments     37,717        
Net cash used in investing activities     (38,227 )     (258,388 )
Cash flows from financing activities:            
Net payments on settlement lines of credit     (47,336 )     (236,041 )
Proceeds from issuance of long-term debt     215,000       2,821,425  
Principal payments of long-term debt     (261,219 )     (2,626,925 )
Payment of debt issuance costs           (4,934 )
Repurchase of common stock     (67,633 )     (34,296 )
Proceeds from stock issued under share-based compensation plans     3,037       2,513  
Common stock repurchased - share-based compensation plans     (22,204 )     (8,154 )
Tax benefit from share-based compensation plans     12,303       5,760  
Distributions to noncontrolling interests     (5,475 )     (8,158 )
Dividends paid     (1,539 )     (1,305 )
Net cash used in financing activities     (175,066 )     (90,115 )
Effect of exchange rate changes on cash     (9,326 )     (12,319 )
(Decrease) increase in cash and cash equivalents     (66,952 )     152,570  
Cash and cash equivalents, beginning of the period     1,044,728       650,739  
Cash and cash equivalents, end of the period     $ 977,776       $ 803,309  
                     
         
SCHEDULE 6
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)

THREE MONTHS ENDED AUGUST 31, 2016 AND 2015

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

         
        Three Months Ended August 31, 2016
        GAAP    

Net Revenue

Adjustments1

   

Earnings

Adjustments2

   

Income Taxes

on

Adjustments3

    Non-GAAP
Revenues       $ 939,492       $ (122,237 )     $       $       $ 817,255
                                 
Operating income       $ 121,106       $       $ 119,612       $       $ 240,718
                                 
Net income attributable to Global Payments       $ 85,093       $       $ 76,992       $ (28,403 )     $ 133,682
                                 
Diluted earnings per share attributable to Global Payments4       $ 0.55                         $ 0.86
                                 
        Three Months Ended August 31, 2015
        GAAP    

Net Revenue

Adjustments1

   

Earnings

Adjustments2

   

Income Taxes

on

Adjustments3

    Non-GAAP
Revenues       $ 748,796       $ (211,843 )     $       $       $ 536,953
                                 
Operating income       $ 137,772       $       $ 25,794       $       $ 163,566
                                 
Net income attributable to Global Payments       $ 86,646       $       $ 24,916       $ (8,537 )     $ 103,025
                                 
Diluted earnings per share attributable to Global Payments4       $ 0.66                         $ 0.79
                                       

1Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

                                       

2 Earnings adjustments to operating income for the three months ended August 31, 2016 include $81.7 million and $37.9 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $81.1 million and other adjustments of $0.6 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $7.4 million and merger-related costs of $30.5 million. Net income attributable to Global Payments was also adjusted to remove a gain on the sale of membership interests in Visa Europe of $41.2 million.

 

Earnings adjustments to operating income for the three months ended August 31, 2015 include $19.3 million and $6.5 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $20.8 million and other adjustments of $1.5 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $6.5 million.

 

3 Income taxes on adjustments reflect the tax effect of earnings adjustments to income before income taxes. The tax rate used in determining the tax impact of earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.

 

4 Adjusted EPS is calculated by dividing adjusted net income attributable to Global Payments by the diluted weighted-average number of shares outstanding. The shares outstanding and diluted earnings per share for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

 

See "Non-GAAP Financial Measures" discussion on Schedule 8.

 
             
SCHEDULE 7
RECONCILIATION OF SEGMENT NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)

THREE MONTHS ENDED AUGUST 31, 2016 AND 2015

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

             
      Three Months Ended August 31, 2016     Three Months Ended August 31, 2015
      GAAP    

Net Revenue

Adjustments1

   

Earnings

Adjustments2

   

Non-

GAAP

    GAAP    

Net Revenue

Adjustments1

   

Earnings

Adjustments2

   

Non-

GAAP

Revenues:                                                
North America     $ 711,765       $ (103,094 )     $       $ 608,671       $ 530,857       $ (190,426 )     $       $ 340,431  
Europe     169,565       (19,143 )           150,422       168,357       (21,417 )           146,940  
Asia-Pacific     58,162                   58,162       49,582                   49,582  
      $ 939,492       $ (122,237 )     $       $ 817,255       $ 748,796       $ (211,843 )     $       $ 536,953  
                                                 
Operating income:                                                
North America     $ 105,700       $       $ 72,661       $ 178,361       $ 83,513       $       $ 13,453       $ 96,966  
Europe     65,539             6,574       72,113       72,733             4,298       77,031  
Asia-Pacific     14,022             2,468       16,490       12,233             1,577       13,810  
Corporate     (64,155 )           37,909       (26,246 )     (30,707 )           6,466       (24,241 )
      $ 121,106       $       $ 119,612       $ 240,718       $ 137,772       $       $ 25,794       $ 163,566  
                                                                                 

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

                                                                                 

2 Earnings adjustments to operating income for the three months ended August 31, 2016 include $81.7 million and $37.9 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $81.1 million and other adjustments of $0.6 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $7.4 million and merger-related costs of $30.5 million.

                                                                                 

Earnings adjustments to operating income for the three months ended August 31, 2015 include $19.3 million and $6.5 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $20.8 million and other adjustments of $1.5 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $6.5 million.

 

See "Non-GAAP Financial Measures" discussion on Schedule 8.

 
                   
SCHEDULE 8
OUTLOOK SUMMARY (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In billions, except per share data)

                   
     

Fiscal 2016

Actual

   

Fiscal 2017

Outlook

    % Change
Revenues:                  
GAAP revenues     $ 2.90       $3.70 to $3.80     28% to 31%
Adjustments1     (0.73 )     (0.50 )      
Adjusted net revenue     $ 2.17       $3.20 to $3.30     47% to 52%
                   
Earnings Per Share ("EPS"):                  
GAAP diluted EPS     $ 2.04       $1.88 to $1.98     (8)% to (3)%
Acquisition-related amortization expense, share-based compensation expense and non-recurring items2     0.94       1.57        
Adjusted EPS     $ 2.98       $3.45 to $3.55     16% to 19%
                       

1Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

                       

2 Fiscal 2016 reflects adjustments for acquisition related amortization expense of $0.58, share-based compensation expense of $0.14 and non-recurring items of $0.22, including merger-related costs, employee termination benefits and a reserve for litigation in Russia, partially offset by recoveries associated with a U.K. vendor outage. Earnings adjustments to GAAP diluted EPS include the items affecting operating income as well as noncontrolling interests, net of tax.

                       

NON-GAAP FINANCIAL MEASURES

Global Payments supplements revenues, income and earnings per share ("EPS") information determined in accordance with U.S. GAAP by providing these measures with certain adjustments (such measures being non-GAAP financial measures) in this document to assist with evaluating our performance. In addition to GAAP measures, management uses these non-GAAP financial measures to focus on the factors the company believes are pertinent to the daily management of our operations. Management believes adjusted net revenue more closely reflects the economic benefits to the company's core business and allows for better comparisons with industry peers. Management uses these non-GAAP financial measures, together with other metrics, to set goals for and measure the performance of the business and to determine incentive compensation. Adjusted net revenue, adjusted operating income, adjusted net income and adjusted EPS should be considered in addition to, and not as substitutes for, revenues, operating income, net income and EPS determined in accordance with GAAP. The non-GAAP financial measures reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.

Adjusted net revenue excludes gross-up related payments associated with certain wholesale lines of business to reflect economic benefits to the company. On a GAAP basis, these payments are presented gross in both revenues and operating expenses.

Adjusted operating income, adjusted net income and adjusted EPS exclude acquisition-related amortization expense, share-based compensation and certain other items specific to each reporting period as more fully described in the accompanying reconciliations in Schedule 6 and Schedule 7. The tax rate used in determining the net income impact of earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.

 

Global Payments Inc.
Investor contact:
Isabel Janci, 770-829-8478
investor.relations@globalpay.com
or
Media contact:
Amy Corn, 770-829-8755
media.relations@globalpay.com

 

Source: Global Payments Inc.

 

 

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