Global Payments Reports First Quarter Earnings, Increases 2017 Outlook and Refinances Debt Facilities

May 4, 2017

 

ATLANTA--(BUSINESS WIRE)-- Global Payments Inc. (NYSE: GPN) today announced results for the first quarter ended March 31, 2017.

"We are off to an exceptional start to 2017, producing double digit organic growth across our markets worldwide in the first quarter," said Jeff Sloan, Chief Executive Officer. "In particular, organic growth in our integrated and vertical markets business accelerated, contributing significantly to our strong performance," Sloan continued. "We have completed the first anniversary of our Heartland partnership, and our combined results underscore our consistency of execution and position us as the leading provider of technology-enabled, software-driven solutions worldwide."

First Quarter 2017 Summary

  • GAAP revenues were $919.8 million, compared to $626.3 million in the first quarter of 2016; diluted earnings per share were $0.32 compared to $0.46 in the prior year; and operating margin was 11.4% compared to 15.1% in the first quarter of 2016.
  • Adjusted net revenue grew 68% to $803.9 million, compared to $479.6 million in the first quarter of 2016.
  • Adjusted earnings per share grew 33% to $0.85, compared to $0.64 in the first quarter of 2016.
  • Adjusted operating margin expanded 110 basis points to 28.5%.

2017 Outlook

"As a result of our strong first quarter performance and progress with Heartland integration efforts, we are increasing our outlook for 2017," stated Cameron Bready, Senior Executive Vice President and Chief Financial Officer. "We now expect adjusted net revenue to range from $3.38 billion to $3.46 billion, or growth of 19% to 22% over 2016 and adjusted operating margin to expand by as much as 110 basis points. Adjusted earnings per share are now expected to be in a range of $3.78 to $3.95, reflecting growth of 19% to 24% over 2016, which includes the impact of our recent refinancing."

Debt Refinancing

On May 2, 2017, Global Payments successfully closed an amendment to its credit facility agreement. Under the terms of the amendment, the company increased its aggregate term loan B facilities by $610 million with the proceeds being used to reduce a portion of the term loan A facilities and outstanding revolving credit facility borrowings. The company's total borrowings remain unchanged as a result of the amendment.

The amendment reduced the interest rate spread on all credit facilities by 50 basis points (subject to adjustment based on an amended leveraged-based pricing grid). Further, the amendment extended the maturities of the term loan A facilities and the revolving credit facility to May 2022.

Capital Allocation

Global Payments' Board of Directors approved a dividend of $0.0133 per share payable June 23, 2017 to shareholders of record as of June 9, 2017. This dividend includes the period from December 1, 2016 through March 31, 2017 to reflect the company's transition to a calendar year fiscal period.

Conference Call

Global Payments' management will host a conference call today, May 4, 2017 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 Transition Report on Form 10-K for the seven months ended December 31, 2016 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
     

March 31,
2017

   

March 31,
2016

   

%
Change

                   
Revenues     $ 919,762       $ 626,259       46.9 %
                   
Operating expenses:                  
Cost of service     455,936       248,187       83.7 %
Selling, general and administrative     358,856       283,499       26.6 %
      814,792       531,686       53.2 %
                   
Operating income     104,970       94,573       11.0 %
                   
Interest and other income     1,607       1,282       25.4 %
Interest and other expense     (41,297 )     (13,075 )     215.8 %
      (39,690 )     (11,793 )     236.6 %
                   
Income before income taxes     65,280       82,780       (21.1 )%
Provision for income taxes     (12,321 )     (19,333 )     (36.3 )%
Net income     52,959       63,447       (16.5 )%
Less: Net income attributable to noncontrolling interests, net of income tax     (4,146 )     (3,536 )     17.3 %
Net income attributable to Global Payments     $ 48,813       $ 59,911       (18.5 )%
                   
Earnings per share attributable to Global Payments:                  
Basic     $ 0.32       $ 0.46       (30.4 )%
Diluted     $ 0.32       $ 0.46       (30.4 )%
                   
Weighted-average number of shares outstanding:                  
Basic     152,304       129,268        
Diluted     153,255       130,137        
                       
       

SCHEDULE 2

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

       
       
      Three Months Ended
     

March 31,
2017

   

March 31,
2016

   

%
Change

                   
Adjusted net revenue     $ 803,879       $ 479,599       67.6 %
                   
Adjusted operating income     $ 228,749       $ 131,635       73.8 %
                   
Adjusted net income     $ 130,034       $ 83,547       55.6 %
                   
Adjusted EPS:     $ 0.85       $ 0.64       32.8 %
                             
                             

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            
      March 31, 2017     March 31, 2016     % Change
      GAAP     Non-GAAP1     GAAP     Non-GAAP1     GAAP     Non-GAAP1
                                     
Revenues:                                    
North America     $ 687,044       $ 597,482       $ 427,860       $ 297,957       60.6 %     100.5 %
Europe     165,549       139,228       144,119       127,362       14.9 %     9.3 %
Asia-Pacific     67,169       67,169       54,280       54,280       23.7 %     23.7 %
      $ 919,762       $ 803,879       $ 626,259       $ 479,599       46.9 %     67.6 %
                                     
Operating income:                                    
North America     $ 94,083       $ 172,377       $ 65,190       $ 78,649       44.3 %     119.2 %
Europe     54,507       63,908       55,778       61,638       (2.3 )%     3.7 %
Asia-Pacific     19,754       20,970       14,559       16,597       35.7 %     26.3 %
Corporate     (63,374 )     (28,506 )     (40,954 )     (25,249 )     54.7 %     12.9 %
      $ 104,970       $ 228,749       $ 94,573       $ 131,635       11.0 %     73.8 %
                                                         
 

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)

             
             
      March 31, 2017     December 31, 2016
             
ASSETS            
Current assets:            
Cash and cash equivalents     $ 1,261,845       $ 1,162,779  
Accounts receivable, net of allowances for doubtful accounts of $1,280 and $1,092 respectively     264,042       275,032  
Claims receivable, net of allowances for doubtful accounts of $5,740 and $5,786, respectively     7,961       8,202  
Settlement processing assets     751,509       1,546,854  
Prepaid expenses and other current assets     113,823       123,139  
Total current assets     2,399,180       3,116,006  
Goodwill     4,859,387       4,807,594  
Other intangible assets, net     1,997,420       2,085,292  
Property and equipment, net     551,951       526,370  
Deferred income taxes     15,838       15,789  
Other     135,940       113,299  
Total assets     $ 9,959,716       $ 10,664,350  
             
LIABILITIES AND EQUITY            
Current liabilities:            
Settlement lines of credit     $ 276,403       $ 392,072  
Current portion of long-term debt     179,004       177,785  
Accounts payable and accrued liabilities     824,319       804,887  
Settlement processing obligations     813,136       1,477,212  
Total current liabilities     2,092,862       2,851,956  
Long-term debt     4,221,258       4,260,827  
Deferred income taxes     636,908       676,472  
Other noncurrent liabilities     132,397       95,753  
Total liabilities     7,083,425       7,885,008  
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; 152,502,543 issued and outstanding at March 31, 2017 and 152,185,616 issued and outstanding at December 31, 2016            
Paid-in capital     1,826,166       1,816,278  
Retained earnings     1,192,519       1,137,230  
Accumulated other comprehensive loss     (287,806 )     (322,717 )
Total Global Payments shareholders' equity     2,730,879       2,630,791  
Noncontrolling interests     145,412       148,551  
Total equity     2,876,291       2,779,342  
Total liabilities and equity     $ 9,959,716       $ 10,664,350  
                     
       

SCHEDULE 5

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

       
       
      Three Months Ended
      March 31, 2017     March 31, 2016
Cash flows from operating activities:            
Net income     $ 52,959       $ 63,447  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization of property and equipment     24,984       18,767  
Amortization of acquired intangibles     84,049       20,545  
Share-based compensation expense     8,816       7,047  
Provision for operating losses and bad debts     13,482       6,553  
Amortization of capitalized customer acquisition costs     8,948        
Deferred income taxes     (19,391 )     (2,328 )
Other, net     4,692       2,598  
Changes in operating assets and liabilities, net of the effects of acquisitions:            
Accounts receivable     11,929       52,461  
Claims receivable     (6,557 )     (4,970 )
Settlement processing assets and obligations, net     122,948       66,233  
Prepaid expenses and other assets     4,644       (12,587 )
Capitalized customer acquisition costs     (4,559 )      
Accounts payable and other liabilities     (12,979 )     (9,553 )
Net cash provided by operating activities     293,965       208,213  
Cash flows from investing activities:            
Capital expenditures     (46,219 )     (24,367 )
Other, net     (422 )     (74 )
Net cash used in investing activities     (46,641 )     (24,441 )
Cash flows from financing activities:            
Net payments on settlement lines of credit     (117,789 )     (135,071 )
Proceeds from long-term debt     149,000       142,000  
Repayments of long-term debt     (189,732 )     (157,000 )
Payment of debt issuance costs     (896 )     (2,099 )
Repurchase of common stock           (2,901 )
Proceeds from stock issued under share-based compensation plans     1,149       179  
Common stock repurchased - share-based compensation plans     (167 )     (527 )
Distributions to noncontrolling interests     (8 )     (4,740 )
Dividends paid     (1,522 )     (1,293 )
Net cash used in financing activities     (159,965 )     (161,452 )
Effect of exchange rate changes on cash     11,707       17,849  
Increase in cash and cash equivalents     99,066       40,169  
Cash and cash equivalents, beginning of the period     1,162,779       587,751  
Cash and cash equivalents, end of the period     $ 1,261,845       $ 627,920  
                     
     

SCHEDULE 6

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

     
     
    Three Months Ended March 31, 2017
    GAAP    

Net Revenue
Adjustments1

   

Earnings
Adjustments2

   

Income Taxes
on
Adjustments3

    Non-GAAP
Revenues   $ 919,762       $ (115,883 )     $       $       $ 803,879
                             
Operating income   $ 104,970       $       $ 123,779       $       $ 228,749
                             
Net income attributable to Global Payments   $ 48,813       $       $ 121,992       $ (40,771 )     $ 130,034
                             
Diluted earnings per share attributable to Global Payments4   $ 0.32                         $ 0.85
                             
    Three Months Ended March 31, 2016
    GAAP    

Net Revenue
Adjustments1

   

Earnings
Adjustments2

   

Income Taxes
on
Adjustments3

    Non-GAAP
Revenues   $ 626,259       $ (146,660 )     $       $       $ 479,599
                             
Operating income   $ 94,573       $       $ 37,062       $       $ 131,635
                             
Net income attributable to Global Payments   $ 59,911       $       $ 35,996       $ (12,360 )     $ 83,547
                             
Diluted earnings per share attributable to Global Payments4   $ 0.46                         $ 0.64
                                   
                                   

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

 

2 Earnings adjustments to operating income for the three months ended March 31, 2017 include $86.3 million and $37.5 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $84.6 million and employee termination expenses of $1.7 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.8 million, merger-related costs of $26.1 million, and employee termination expenses of $2.6 million.

 

Earnings adjustments to operating income for the three months ended March 31, 2016 include $21.1 million and $16.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $21.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $7.0 million, merger-related costs of $8.7 million and $0.3 million of other adjustments.

 

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.

 

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 MARCH 31, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

         
         
    Three Months Ended March 31, 2017   Three Months Ended March 31, 2016
    GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Non-
GAAP

  GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Non-
GAAP

Revenues:                                
North America   $ 687,044     $ (89,562 )   $     $ 597,482     $ 427,860     $ (129,903 )   $     $ 297,957  
Europe   165,549     (26,321 )       139,228     144,119     (16,757 )       127,362  
Asia-Pacific   67,169             67,169     54,280             54,280  
    $ 919,762     $ (115,883 )   $     $ 803,879     $ 626,259     $ (146,660 )   $     $ 479,599  
                                 
Operating income:                                
North America   $ 94,083     $     $ 78,294     $ 172,377     $ 65,190     $     $ 13,459     $ 78,649  
Europe   54,507         9,401     63,908     55,778         5,860     61,638  
Asia-Pacific   19,754         1,216     20,970     14,559         2,038     16,597  
Corporate   (63,374 )       34,868     (28,506 )   (40,954 )       15,705     (25,249 )
    $ 104,970     $     $ 123,779     $ 228,749     $ 94,573     $     $ 37,062     $ 131,635  
                                                                 
                                                                 

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

 

2 Earnings adjustments to operating income for the three months ended March 31, 2017 include $86.3 million and $37.5 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $84.6 million and employee termination expenses of $1.7 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.8 million, merger-related costs of $26.1 million, and employee termination expenses of $2.6 million.

 

Earnings adjustments to operating income for the three months ended March 31, 2016 include $21.1 million and $16.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $21.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $7.0 million, merger-related costs of $8.7 million and $0.3 million of other adjustments.

 

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)

                   
                   
      2016 Actual     2017 Outlook     % Change
Revenues:                  
GAAP revenue     $3.37       $3.81 to $3.89     13% to 15%
Adjustments1     (0.53 )     (0.43 )      
Adjusted net revenue     $2.84       $3.38 to $3.46     19% to 22%
                   
Earnings Per Share ("EPS"):                  
GAAP diluted EPS     $1.37       $1.91 to $2.08     39% to 52%
Acquisition-related amortization expense, share-based compensation expense and other items2     1.82       1.87        
Adjusted EPS     $3.19       $3.78 to $3.95     19% to 24%
                     
                     

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

 

2 Adjustments to Calendar 2016 GAAP diluted EPS include acquisition related amortization expense of $1.17, share-based compensation expense of $0.14 and net other items of $0.51, including merger-related costs of $0.62 and a $0.16 adjustment to remove a gain on the sale of membership interests in Visa Europe.

 

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 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 Schedules 6 and 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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