Global Payments Reports Second Quarter 2017 Earnings and Increases 2017 Outlook

August 3, 2017

 

Announces Agreement to Acquire ACTIVE Network

ATLANTA--(BUSINESS WIRE)-- Global Payments Inc. (NYSE: GPN) today announced results for the second quarter ended June 30, 2017.

"We delivered another outstanding quarter highlighted by double digit organic net revenue growth across our markets, building on the momentum of the last several quarters," said Jeff Sloan, Chief Executive Officer. "Our results reflect strong execution worldwide and our strategy of continuing to invest in and grow our technology-enabled businesses. Today's agreement to acquire the communities and sports divisions of ACTIVE Network adds complementary vertical-specific solutions to our portfolio and positions us well to continue to gain share going forward."

Second Quarter 2017 Summary

  • GAAP revenues were $962.2 million, compared to $842.6 million in the second quarter of 2016; diluted earnings per share were $0.44 compared to $0.42 in the prior year; and operating margin was 13.7% compared to 7.3% in the second quarter of 2016.
  • Adjusted net revenue grew 18.4% to $847.9 million, compared to $716.3 million in the second quarter of 2016.
  • Adjusted earnings per share grew 24% to $0.94, compared to $0.76 in the second quarter of 2016.
  • Adjusted operating margin expanded 130 basis points to 29.2%.

2017 Outlook

"We are delighted with our performance in the second quarter and year-to-date period, which reflects continued strong execution across our businesses and positions us to increase our outlook for 2017 results," stated Cameron Bready, Senior Executive Vice President and Chief Financial Officer. "We now expect adjusted net revenue to range from $3.40 billion to $3.475 billion, or growth of 20% to 22% over 2016 and adjusted operating margin to expand by as much as 120 basis points. Adjusted earnings per share are now expected to be in a range of $3.85 to $4.00, reflecting growth of 21% to 25% over 2016. Our outlook for calendar 2017 does not include any impact from the ACTIVE Network acquisition, which we expect to be immaterial to 2017 adjusted earnings per share."

Capital Allocation

Global Payments' Board of Directors approved a dividend of $0.01 per share payable September 29, 2017 to shareholders of record as of September 15, 2017.

Conference Call

Global Payments' management will host a conference call today, August 3, 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, earnings estimates and management's expectations regarding future events and developments, and statements about the proposed acquisition of ACTIVE Network, including future financial and operating results, the combined company's plans, objectives, expectations and intentions 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 larger companies and non-traditional competitors, our ability to update our services in a timely manner; 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; potential systems interruptions or failures; software defects or undetected errors; increased attrition of merchants, referral partners or independent sales organizations; our ability to increase our share of existing markets and expand into new markets; a decline in the use of cards for payment generally; unanticipated increases in chargeback liability; increases in credit card network fees; change 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; including without limitation difficulties and delays in integrating the Heartland business or fully realizing cost savings and other benefits of the acquisition at all or within the expected time period; fully realizing anticipated annual interest expense savings from refinancing our corporate debt facilities; our loss of key personnel and other risk factors presented in Item 1- Risk Factors of 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. Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.

Additional important factors that could cause actual events or results to differ materially from those anticipated by our forward-looking statements or historical performance associated with the proposed acquisition of ACTIVE Network include the ability to meet closing conditions at all or on the expected terms and schedule, business disruption during the pendency of the acquisition or thereafter making it more difficult to maintain business and operational relationships, including the possibility that our announcement of the acquisition could disrupt our or ACTIVE Network's relationships with financial institutions, customers, employees or other partners; and difficulties and delays in integrating the ACTIVE Network business or fully realizing benefits of the acquisition at all or within the expected time period.

               

SCHEDULE 1

UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

   
               
               
    Three Months Ended       Six Months Ended  
   

June 30,
2017

   

June 30,
2016

   

%
Change

     

June 30,
2017

   

June 30,
2016

   

%
Change

 
                                       
Revenues   $ 962,240       $ 842,644       14.2 %     $ 1,882,002       $ 1,468,904       28.1 %
                                       
Operating expenses:                                      
Cost of service   469,149       406,873       15.3 %     925,085       655,060       41.2 %
Selling, general and administrative   361,239       374,610       (3.6 )%     720,095       658,110       9.4 %
    830,388       781,483       6.3 %     1,645,180       1,313,170       25.3 %
                                       
Operating income   131,852       61,161       115.6 %     236,822       155,734       52.1 %
                                       
Interest and other income   1,832       42,565       (95.7 )%     3,439       43,847       (92.2 )%
Interest and other expense   (48,361 )     (36,597 )     32.1 %     (89,658 )     (49,672 )     80.5 %
    (46,529 )     5,968       NM       (86,219 )     (5,825 )     NM  
                                       
Income before income taxes   85,323       67,129       27.1 %     150,603       149,909       0.5 %
(Provision for) benefit from income taxes   (12,880 )     4       NM       (25,201 )     (19,329 )     30.4 %
Net income   72,443       67,133       7.9 %     125,402       130,580       (4.0 )%
Less: Net income attributable to noncontrolling interests, net of income tax   (5,534 )     (4,900 )     12.9 %     (9,679 )     (8,436 )     14.7 %
Net income attributable to Global Payments   $ 66,909       $ 62,233       7.5 %     $ 115,723       $ 122,144       (5.3 )%
                                       
Earnings per share attributable to Global Payments:                                      
Basic   $ 0.44       $ 0.42       4.8 %     $ 0.76       $ 0.88       (13.6 )%
Diluted   $ 0.44       $ 0.42       4.8 %     $ 0.75       $ 0.87       (13.8 )%
                                       
Weighted-average number of shares outstanding:                                      
Basic   152,525       148,338               152,415       138,803          
Diluted   153,555       149,418               153,405       139,778          
                                               

NM - Not meaningful.

   
                                               
           

SCHEDULE 2

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

           
    Three Months Ended     Six Months Ended
   

June 30,
2017

   

June 30,
2016

    % Change    

June 30,
2017

   

June 30,
2016

    % Change
                                   
Adjusted net revenue   $ 847,941       $ 716,310       18.4 %     $ 1,651,820       $ 1,195,910       38.1 %
                                   
Adjusted operating income   $ 247,738       $ 200,172       23.8 %     $ 476,487       $ 331,808       43.6 %
                                   
Adjusted net income   $ 144,366       $ 114,263       26.3 %     $ 274,402       $ 197,811       38.7 %
                                   
Adjusted EPS   $ 0.94       $ 0.76       23.7 %     $ 1.79       $ 1.42       26.1 %
See Schedules 6 and 7 for a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure and Schedule 10 for a discussion of non-GAAP financial measures.
                 

SCHEDULE 3

SEGMENT INFORMATION (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

 

                 
    Three Months Ended            
    June 30, 2017     June 30, 2016     % Change
    GAAP    

Non-
GAAP1

    GAAP    

Non-
GAAP1

    GAAP    

Non-
GAAP1

                                   
Revenues:                                  
North America   $ 710,965       $ 624,413       $ 624,120       $ 519,011       13.9 %     20.3 %
Europe   186,506       158,759       162,255       141,030       14.9 %     12.6 %
Asia-Pacific   64,769       64,769       56,269       56,269       15.1 %     15.1 %
    $ 962,240       $ 847,941       $ 842,644       $ 716,310       14.2 %     18.4 %
                                   
Operating income:                                  
North America   $ 112,176       $ 185,144       $ 82,476       $ 142,458       36.0 %     30.0 %
Europe   65,673       72,268       52,788       66,958       24.4 %     7.9 %
Asia-Pacific   17,535       19,590       11,050       15,134       58.7 %     29.4 %
Corporate   (63,532 )     (29,264 )     (85,153 )     (24,378 )     (25.4 )%     20.0 %
    $ 131,852       $ 247,738       $ 61,161       $ 200,172       115.6 %     23.8 %
    Six Months Ended            
    June 30, 2017     June 30, 2016     % Change
    GAAP    

Non-
GAAP1

    GAAP    

Non-
GAAP1

    GAAP    

Non-
GAAP1

                                   
Revenues:                                  
North America   $ 1,398,009       $ 1,221,895       $ 1,051,980       $ 816,969       32.9 %     49.6 %
Europe   352,054       297,986       306,374       268,391       14.9 %     11.0 %
Asia-Pacific   131,939       131,939       110,550       110,550       19.3 %     19.3 %
    $ 1,882,002       $ 1,651,820       $ 1,468,904       $ 1,195,910       28.1 %     38.1 %
                                   
Operating income:                                  
North America   $ 206,259       $ 357,521       $ 147,665       $ 221,105       39.7 %     61.7 %
Europe   120,180       136,176       108,566       128,596       10.7 %     5.9 %
Asia-Pacific   37,289       40,559       25,609       31,731       45.6 %     27.8 %
Corporate   (126,906 )     (57,769 )     (126,106 )     (49,624 )     0.6 %     16.4 %
    $ 236,822       $ 476,487       $ 155,734       $ 331,808       52.1 %     43.6 %

1 See Schedules 8 and 9 for a reconciliation of adjusted net revenue and adjusted operating income by segment to the most comparable GAAP measures and Schedule 10 for a discussion of non-GAAP financial measures.

         

SCHEDULE 4

UNAUDITED CONSOLIDATED BALANCE SHEETS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except share data)

         
    June 30, 2017   December 31, 2016
         
ASSETS        
Current assets:        
Cash and cash equivalents   $ 1,080,576     $ 1,162,779  
Accounts receivable, net of allowances for doubtful accounts of $1,295 and $1,092 respectively   283,640     275,032  
Claims receivable, net of allowances for doubtful accounts of $6,616 and $5,786, respectively   4,513     8,202  
Settlement processing assets   999,946     1,546,854  
Prepaid expenses and other current assets   147,396     123,139  
Total current assets   2,516,071     3,116,006  
Goodwill   4,890,016     4,807,594  
Other intangible assets, net   1,927,167     2,085,292  
Property and equipment, net   537,879     526,370  
Deferred income taxes   16,388     15,789  
Other noncurrent assets   149,260     113,299  
Total assets   $ 10,036,781     $ 10,664,350  
         
LIABILITIES AND EQUITY        
Current liabilities:        
Settlement lines of credit   $ 318,284     $ 392,072  
Current portion of long-term debt   86,510     177,785  
Accounts payable and accrued liabilities   823,236     804,887  
Settlement processing obligations   870,434     1,477,212  
Total current liabilities   2,098,464     2,851,956  
Long-term debt   4,175,411     4,260,827  
Deferred income taxes   617,308     676,472  
Other noncurrent liabilities   140,960     95,753  
Total liabilities   7,032,143     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; 152,556,769 issued and outstanding at June 30, 2017 and 152,185,616 issued and outstanding at December 31, 2016        
Paid-in capital   1,838,889     1,816,278  
Retained earnings   1,255,552     1,137,230  
Accumulated other comprehensive loss   (243,459 )   (322,717 )
Total Global Payments shareholders' equity   2,850,982     2,630,791  
Noncontrolling interests   153,656     148,551  
Total equity   3,004,638     2,779,342  
Total liabilities and equity   $ 10,036,781     $ 10,664,350  
       

SCHEDULE 5

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

       
    Six Months Ended  
    June 30, 2017       June 30, 2016  
Cash flows from operating activities:              
Net income   $   125,402         $   130,580    
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization of property and equipment   51,197         40,079    
Amortization of acquired intangibles   165,117         87,675    
Share-based compensation expense   21,153         17,372    
Provision for operating losses and bad debts   25,940         16,720    
Amortization of capitalized customer acquisition costs   19,681         3,352    
Deferred income taxes   (38,603 )       (19,719 )  
Gain on sale of investments           (41,150 )  
Other, net   17,057         8,901    
Changes in operating assets and liabilities, net of the effects of acquisitions:              
Accounts receivable   (4,901 )       8,907    
Claims receivable   (11,335 )       (10,854 )  
Settlement processing assets and obligations, net   (63,523 )       14,307    
Prepaid expenses and other assets   30,679         (47,940 )  
Capitalized customer acquisition costs   (44,351 )       (20,127 )  
Accounts payable and other liabilities   (25,452 )       61,194    
Net cash provided by operating activities   268,061         249,297    
Cash flows from investing activities:              
Business acquisitions, net of cash acquired           (1,826,657 )  
Capital expenditures   (89,958 )       (62,910 )  
Proceeds from sale of investments           37,717    
Proceeds from sales of property and equipment   37,497         57    
Other, net   (34,242 )       (370 )  
Net cash used in investing activities   (86,703 )       (1,852,163 )  
Cash flows from financing activities:              
Net payments on settlement lines of credit   (88,490 )       (97,652 )  
Proceeds from long-term debt   902,324         3,047,052    
Repayments of long-term debt   (1,082,898 )       (809,933 )  
Payment of debt issuance costs   (9,461 )       (58,448 )  
Repurchase of common stock   (5,342 )       (82,836 )  
Proceeds from stock issued under share-based compensation plans   6,188         2,424    
Common stock repurchased - share-based compensation plans   (418 )       (337 )  
Proceeds from sale of subsidiary shares to noncontrolling interest           16,374    
Distributions to noncontrolling interests   (9,301 )       (4,740 )  
Dividends paid   (3,551 )       (2,837 )  
Net (used in) provided by financing activities   (290,949 )       2,009,067    
Effect of exchange rate changes on cash   27,388         (5,582 )  
(Decrease) increase in cash and cash equivalents   (82,203 )       400,619    
Cash and cash equivalents, beginning of the period   1,162,779         587,751    
Cash and cash equivalents, end of the period   $   1,080,576         $   988,370    
     

SCHEDULE 6

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

THREE MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

     
    Three Months Ended June 30, 2017
    GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Income
Taxes on
Adjustments3

  Non-GAAP
Revenues   $ 962,240     $ (114,299 )   $     $     $ 847,941
                     
Operating income   $ 131,852     $     $ 115,886     $     $ 247,738
                     
Net income attributable to Global Payments   $ 66,909     $     $ 120,884     $ (43,427 )   $ 144,366
                     
Diluted earnings per share attributable to Global Payments4   $ 0.44                 $ 0.94
                     
    Three Months Ended June 30, 2016
    GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Income
Taxes on
Adjustments3

  Non-GAAP
Revenues   $ 842,644     $ (126,334 )   $     $     $ 716,310
                     
Operating income   $ 61,161     $     $ 139,011     $     $ 200,172
                     
Net income attributable to Global Payments   $ 62,233     $     $ 96,877     $ (44,847 )   $ 114,263
                     
Diluted earnings per share attributable to Global Payments4   $ 0.42                 $ 0.76
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 June 30, 2017 include $81.6 million of amortization of acquired intangibles in cost of service and $34.2 million in selling, general and administrative expenses, consisting of share-based compensation expense of $12.3 million and merger-related costs of $21.9 million. Net income attributable to Global Payments also reflects an adjustment to remove a non-cash charge of $6.8 million associated with the refinancing of our corporate credit facility.
 
Earnings adjustments to operating income for the three months ended June 30, 2016 include $68.0 million in cost of service and $71.0 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $67.7 million and other adjustments of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.6 million, merger-related costs of $51.3 million, litigation related costs of $7.6 million, employee termination benefits of $2.1 million and $0.4 million of other adjustments. Net income attributable to Global Payments also reflects an adjustment to remove a gain on the sale of membership interests in Visa Europe of $41.2 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. In addition, income taxes on adjustments for the three months ended June 30, 2017 reflect the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability. For the three months ended June 30, 2016, income taxes on adjustments reflect the removal of a $10.9 million tax benefit associated with our decision to indefinitely reinvest earnings in Canada.
 
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 10.
     

SCHEDULE 7

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

SIX MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

     
    Six Months Ended June 30, 2017
    GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Income
Taxes on
Adjustments3

  Non-GAAP
Revenues   $ 1,882,002     $ (230,182 )   $     $     $ 1,651,820
                     
Operating income   $ 236,822     $     $ 239,665     $     $ 476,487
                     
Net income attributable to Global Payments   $ 115,723     $     $ 242,876     $ (84,197 )   $ 274,402
                     
Diluted earnings per share attributable to Global Payments4   $ 0.75                 $ 1.79
                     
    Six Months Ended June 30, 2016
    GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Income
Taxes on
Adjustments3

  Non-GAAP
Revenues   $ 1,468,904     $ (272,994 )   $     $     $ 1,195,910
                     
Operating income   $ 155,734     $     $ 176,074     $     $ 331,808
                     
Net income attributable to Global Payments   $ 122,144     $     $ 132,874     $ (57,207 )   $ 197,811
                     
Diluted earnings per share attributable to Global Payments4   $ 0.87                 $ 1.42
1Represents 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 six months ended June 30, 2017 include $167.9 million and $71.8 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $166.2 million and employee termination benefits of $1.7 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $21.2 million, merger-related cost of $48.0 million and employee termination benefits of $2.6 million. Net income attributable to Global Payments also reflects an adjustment to remove a non-cash charge of $6.8 million associated with the refinancing of our corporate credit facility.
 
Earnings adjustments to operating income for the six months ended June 30, 2016 include $89.1 million and $86.9 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $88.8 million and other adjustments of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $16.6 million, merger-related costs of $60.0 million, litigation related costs of $7.6 million, employee termination benefits of $2.1 million and $0.6 million of other adjustments. Net income attributable to Global Payments also reflects an adjustment to remove a gain on the sale of membership interests in Visa Europe of $41.2 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. In addition, income taxes on adjustments for the six months ended June 30, 2017 reflect the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability. For the six months ended June 30, 2016, income taxes on adjustments reflect the removal of a $10.9 million tax benefit associated with our decision to indefinitely reinvest earnings in Canada.
 
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 10.
           

SCHEDULE 8

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

THREE MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

           
    Three Months Ended June 30, 2017     Three Months Ended June 30, 2016
    GAAP    

Net Revenue
Adjustments1

   

Earnings
Adjustments2

   

Non-
GAAP

    GAAP    

Net Revenue
Adjustments1

   

Earnings
Adjustments2

   

Non-
GAAP

Revenues:                                              
North America   $ 710,965       $ (86,552 )     $       $ 624,413       $ 624,120       $ (105,109 )     $       $ 519,011  
Europe   186,506       (27,747 )           158,759       162,255       (21,225 )           141,030  
Asia-Pacific   64,769                   64,769       56,269                   56,269  
    $ 962,240       $ (114,299 )     $       $ 847,941       $ 842,644       $ (126,334 )     $       $ 716,310  
                                               
Operating income:                                              
North America   $ 112,176       $       $ 72,968       $ 185,144       $ 82,476       $       $ 59,982       $ 142,458  
Europe   65,673             6,595       72,268       52,788             14,170       66,958  
Asia-Pacific   17,535             2,055       19,590       11,050             4,084       15,134  
Corporate   (63,532 )           34,268       (29,264 )     (85,153 )           60,775       (24,378 )
    $ 131,852       $       $ 115,886       $ 247,738       $ 61,161       $       $ 139,011       $ 200,172  
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 June 30, 2017 include $81.6 million of amortization of acquired intangibles in cost of service and $34.2 million in selling, general and administrative expenses, consisting of share-based compensation expense of $12.3 million and merger-related costs of $21.9 million.
 
Earnings adjustments to operating income for the three months ended June 30, 2016 include $68.0 million and $71.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $67.7 million and other adjustments of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.6 million, merger-related costs of $51.3 million, litigation related costs of $7.6 million, employee termination benefits of $2.1 million and $0.4 million of other adjustments.
 
See "Non-GAAP Financial Measures" discussion on Schedule 10.
         

SCHEDULE 9

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

SIX MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

         
    Six Months Ended June 30, 2017   Six Months Ended June 30, 2016
    GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Non-
GAAP

  GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Non-
GAAP

Revenues:                                
North America   $ 1,398,009     $ (176,114 )   $     $ 1,221,895     $ 1,051,980     $ (235,011 )   $     $ 816,969  
Europe   352,054     (54,068 )       297,986     306,374     (37,983 )       268,391  
Asia-Pacific   131,939             131,939     110,550             110,550  
    $ 1,882,002     $ (230,182 )   $     $ 1,651,820     $ 1,468,904     $ (272,994 )   $     $ 1,195,910  
                                 
Operating income:                                
North America   $ 206,259     $     $ 151,262     $ 357,521     $ 147,665     $     $ 73,440     $ 221,105  
Europe   120,180         15,996     136,176     108,566         20,030     128,596  
Asia-Pacific   37,289         3,270     40,559     25,609         6,122     31,731  
Corporate   (126,906 )       69,137     (57,769 )   (126,106 )       76,482     (49,624 )
    $ 236,822     $     $ 239,665     $ 476,487     $ 155,734     $     $ 176,074     $ 331,808  
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 six months ended June 30, 2017 include $167.9 million in cost of service and $71.8 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $166.2 million and employee termination benefits of $1.7 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $21.2 million, merger-related cost of $48.0 million and employee termination benefits of $2.6 million.
 
Earnings adjustments to operating income for the six months ended June 30, 2016 include $89.1 million and $86.9 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $88.8 million and other adjustments of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $16.6 million, merger-related costs of $60.0 million, litigation related costs of $7.6 million, employee termination benefits of $2.1 million and $0.6 million of other adjustments.
 
See "Non-GAAP Financial Measures" discussion on Schedule 10.
                 

SCHEDULE 10

OUTLOOK SUMMARY (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In billions, except per share data)

                 
    2016 Actual     2017 Outlook3     % Change
Revenues:                
GAAP revenue   $3.37       $3.83 to $3.91     14% to 16%
Adjustments1   (0.53 )     (0.43 )      
Adjusted net revenue   $2.84       $3.40 to $3.48     20% to 22%
                 
Earnings Per Share ("EPS"):                
GAAP diluted EPS   $1.37       $1.98 to $2.13     45% to 55%
Acquisition-related amortization expense, share-based compensation expense and other items2   1.82       1.87        
Adjusted EPS   $3.19       $3.85 to $4.00     21% to 25%
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, a $0.16 adjustment to remove a gain on the sale of membership interests in Visa Europe and a $0.07 adjustment to remove a tax benefit associated with our decision to indefinitely reinvest earnings in Canada. Adjustments to 2016 GAAP diluted EPS also includes the effect of these adjustments on noncontrolling interests and income taxes, as applicable.
 
3 The 2017 Outlook does not include the effect of the announced acquisition of the communities and sports divisions of ACTIVE Network.

NON-GAAP FINANCIAL MEASURES

 
Global Payments supplements revenues, income and 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, 7, 8 and 9. 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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