Global Payments Reports Third Quarter 2017 Earnings and Increases 2017 Outlook

November 8, 2017

 

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

"We delivered another quarter of double digit organic adjusted net revenue growth, underscoring the ongoing successful execution of our technology enabled, software driven strategy," said Jeff Sloan, Chief Executive Officer. "Our integrated and vertical markets and ecommerce and omnichannel solutions businesses, which now comprise 40% of our adjusted net revenue, provide further opportunities for sustained share gains. Additionally, we are delighted with the pace of revenue cross-sell efforts around the world from our recent acquisitions, which positions us well for future growth."

Third Quarter 2017 Summary

  • GAAP revenues were $1,038.9 million, compared to $951.9 million in the third quarter of 2016; diluted earnings per share were $0.71 compared to $0.36 in the prior year; and operating margin was 16.6% compared to 12.6% in the third quarter of 2016.
  • Adjusted net revenue grew 12% to $930.4 million, compared to $828.4 million in the third quarter of 2016.
  • Adjusted earnings per share grew 29% to $1.15, compared to $0.89 in the third quarter of 2016.
  • Adjusted operating margin expanded 110 basis points to 31.3%.

2017 Outlook

"We are very pleased with our performance in the third quarter and year-to-date period, again delivering results in excess of our targets for the business," stated Cameron Bready, Senior Executive Vice President and Chief Financial Officer. "As a result of this strong performance and to reflect the impacts of the ACTIVE Network transaction, we are increasing our outlook for 2017. We now expect adjusted net revenue to range from $3.505 billion to $3.53 billion, or growth of 23% to 24% over 2016 and adjusted earnings per share to be in a range of $3.94 to $4.02, reflecting growth of 24% to 26% over 2016. We continue to expect adjusted operating margin to expand by as much as 120 basis points."

Capital Allocation

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

Conference Call

Global Payments' management will host a conference call today, November 8, 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 10,000 employees worldwide, Global Payments is a member of the S&P 500 with customers 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, 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 or ACTIVE Network businesses or fully realizing cost savings and other benefits of the acquisitions 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.

 
 
 
 
 

SCHEDULE 1
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)

 
        Three Months Ended     Nine Months Ended
        September 30     September 30
        2017     2016     % Change     2017     2016     % Change
                                       
Revenues       $ 1,038,907       $ 951,885       9.1 %     $ 2,920,910       $ 2,420,789       20.7 %
                                       
Operating expenses:                                      
Cost of service       493,883       469,980       5.1 %     1,418,969       1,125,041       26.1 %
Selling, general and administrative       372,553       361,516       3.1 %     1,092,648       1,019,626       7.2 %
        866,436       831,496       4.2 %     2,511,617       2,144,667       17.1 %
                                       
Operating income       172,471       120,389       43.3 %     409,293       276,122       48.2 %
                                       
Interest and other income       2,347       1,465       60.2 %     5,787       45,312       (87.2 )%
Interest and other expense       (40,764 )     (45,609 )     (10.6 )%     (130,422 )     (95,280 )     36.9 %
        (38,417 )     (44,144 )     (13.0 )%     (124,635 )     (49,968 )     149.4 %
                                       
Income before income taxes       134,054       76,245       75.8 %     284,658       226,154       25.9 %
Provision for income taxes       (15,692 )     (14,021 )     11.9 %     (40,893 )     (33,350 )     22.6 %
Net income       118,362       62,224       90.2 %     243,765       192,804       26.4 %
Less: Net income attributable to noncontrolling interests, net of income tax       (7,622 )     (6,714 )     13.5 %     (17,302 )     (15,150 )     14.2 %
Net income attributable to Global Payments       $ 110,740       $ 55,510       99.5 %     $ 226,463       $ 177,654       27.5 %
                                       
Earnings per share attributable to Global Payments:                                      
Basic       $ 0.72       $ 0.36       100.0 %     $ 1.48       $ 1.24       19.4 %
Diluted       $ 0.71       $ 0.36       97.2 %     $ 1.47       $ 1.23       19.5 %
                                       
Weighted-average number of shares outstanding:                                      
Basic       154,560       153,668             153,138       143,794        
Diluted       155,402       154,530             154,079       144,731        
 
 
 
 
 
 

SCHEDULE 2
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)

 
          Three Months Ended   Nine Months Ended
          September 30   September 30
          2017   2016   % Change   2017   2016   % Change
                               
Adjusted net revenue         $ 930,411   $ 828,436   12.3 %   $ 2,582,231   $ 2,024,346   27.6 %
                               
Adjusted operating income         $ 290,773   $ 249,943   16.3 %   $ 767,260   $ 581,749   31.9 %
                               
Adjusted net income         $ 178,313   $ 137,925   29.3 %   $ 452,714   $ 335,736   34.8 %
                               
Adjusted EPS         $ 1.15   $ 0.89   29.2 %   $ 2.94   $ 2.32   26.7 %
                                           

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        
         

September 30, 2017

 

September 30, 2016

  % Change
         

GAAP

 

Non-GAAP1

 

GAAP

    Non-GAAP1   GAAP   Non-GAAP1
                                 
Revenues:                                
North America         $ 764,902     $ 685,776     $ 718,977       $ 618,712     6.4 %   10.8 %
Europe           205,203       175,833       173,246         150,062     18.4 %   17.2 %
Asia-Pacific           68,802       68,802       59,662         59,662     15.3 %   15.3 %
          $ 1,038,907     $ 930,411     $ 951,885       $ 828,436     9.1 %   12.3 %
                                 
Operating income:                                
North America         $ 138,345     $ 216,870     $ 110,983       $ 188,197     24.7 %   15.2 %
Europe           76,214       83,130       63,727         71,017     19.6 %   17.1 %
Asia-Pacific           20,032       22,197       14,657         17,291     36.7 %   28.4 %
Corporate          

(62,120

)

   

(31,424

)

   

(68,978

)

      (26,562 )   (9.9 )%   18.3 %
          $ 172,471     $ 290,773     $ 120,389       $ 249,943     43.3 %   16.3 %
 
 
          Nine Months Ended        
          September 30, 2017   September 30, 2016   % Change
          GAAP   Non-GAAP1   GAAP     Non-GAAP1   GAAP   Non-GAAP1
                                 
Revenues:                                
North America         $ 2,162,911     $ 1,907,670     $ 1,770,957       $ 1,435,680     22.1 %   32.9 %
Europe           557,258       473,820       479,620         418,454     16.2 %   13.2 %
Asia-Pacific           200,741       200,741       170,212         170,212     17.9 %   17.9 %
          $ 2,920,910     $ 2,582,231     $ 2,420,789       $ 2,024,346     20.7 %   27.6 %
                                 
Operating income:                                
North America         $ 344,604     $ 574,391     $ 258,648       $ 409,302     33.2 %   40.3 %
Europe           196,394       219,305       172,293         199,612     14.0 %   9.9 %
Asia-Pacific           57,321       62,756       40,266         49,021     42.4 %   28.0 %
Corporate           (189,026 )     (89,192 )     (195,085 )       (76,186 )   (3.1 )%   17.1 %
          $ 409,293     $ 767,260     $ 276,122       $ 581,749     48.2 %   31.9 %
                                                     

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)

 
       

September 30,

2017

   

December 31,

2016

               
ASSETS              
Current assets:              
Cash and cash equivalents       $ 1,186,050       $ 1,162,779  
Accounts receivable, net of allowances for doubtful accounts of $1,423 and $1,092, respectively       296,366       275,032  
Settlement processing assets       1,847,232       1,546,854  
Prepaid expenses and other current assets       220,649       131,341  
Total current assets       3,550,297       3,116,006  
Goodwill       5,616,414       4,807,594  
Other intangible assets, net       2,328,709       2,085,292  
Property and equipment, net       577,188       526,370  
Deferred income taxes       16,736       15,789  
Other noncurrent assets       192,205       113,299  
Total assets       $ 12,281,549       $ 10,664,350  
               
LIABILITIES AND EQUITY              
Current liabilities:              
Settlement lines of credit       $ 487,513       $ 392,072  
Current portion of long-term debt       93,408       177,785  
Accounts payable and accrued liabilities       992,363       804,887  
Settlement processing obligations       1,550,627       1,477,212  
Total current liabilities       3,123,911       2,851,956  
Long-term debt       4,677,910       4,260,827  
Deferred income taxes       632,648       676,472  
Other noncurrent liabilities       152,127       95,753  
Total liabilities       8,586,596       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; 158,762,894 issued and outstanding at September 30, 2017 and 152,185,616 issued and outstanding at December 31, 2016              
Paid-in capital       2,376,331       1,816,278  
Retained earnings       1,357,526       1,137,230  
Accumulated other comprehensive loss       (202,508 )     (322,717 )
Total Global Payments shareholders' equity       3,531,349       2,630,791  
Noncontrolling interests       163,604       148,551  
Total equity       3,694,953       2,779,342  
Total liabilities and equity       $ 12,281,549       $ 10,664,350  
 
 
 
 
 
 

SCHEDULE 5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)

 
          Nine Months Ended
         

September 30,

2017

   

September 30,

2016

Cash flows from operating activities:                
Net income         $ 243,765       $ 192,804  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization of property and equipment         80,868       62,964  
Amortization of acquired intangibles         249,095       173,345  
Share-based compensation expense         30,771       26,060  
Provision for operating losses and bad debts         37,203       26,069  
Amortization of capitalized customer acquisition costs         32,863       9,337  
Deferred income taxes         (51,093 )     (30,504 )
Gain on sale of investments               (41,150 )
Other, net         34,190       26,790  
Changes in operating assets and liabilities, net of the effects of acquisitions:                
Accounts receivable         (6,070 )     14,216  
Settlement processing assets and obligations, net         (232,713 )     (109 )
Prepaid expenses and other assets         (12,605 )     (27,474 )
Capitalized customer acquisition costs         (65,697 )     (45,425 )
Accounts payable and other liabilities         19,546       (19,491 )
Net cash provided by operating activities         360,123       367,432  
Cash flows from investing activities:                
Business acquisitions, net of cash acquired         (563,009 )     (1,825,975 )
Capital expenditures         (136,612 )     (102,442 )
Proceeds from sale of investments               37,783  
Proceeds from sales of property and equipment         37,520        
Other, net         (48,056 )     (1,409 )
Net cash used in investing activities         (710,157 )     (1,892,043 )
Cash flows from financing activities:                
Net proceeds from (repayments of) settlement lines of credit         77,397       (952 )
Proceeds from long-term debt         1,713,324       3,263,045  
Repayments of long-term debt         (1,386,721 )     (1,110,258 )
Payment of debt issuance costs         (9,520 )     (58,448 )
Repurchase of common stock         (32,811 )     (130,314 )
Proceeds from stock issued under share-based compensation plans         7,068       5,614  
Common stock repurchased - share-based compensation plans         (21,171 )     (15,622 )
Proceeds from sale of subsidiary shares to noncontrolling interest               16,374  
Distributions to noncontrolling interests         (9,301 )     (10,216 )
Dividends paid         (5,141 )     (4,376 )
Net cash provided by financing activities         333,124       1,954,847  
Effect of exchange rate changes on cash         40,181       (7,142 )
Increase in cash and cash equivalents         23,271       423,094  
Cash and cash equivalents, beginning of the period         1,162,779       587,751  
Cash and cash equivalents, end of the period         $ 1,186,050       $ 1,010,845  
   
   
   
   
   
   

SCHEDULE 6
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)

 
      Three Months Ended September 30, 2017
      GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

 

Income

Taxes on

Adjustments3

  Non-GAAP
Revenues     $ 1,038,907     $ (108,496 )   $     $     $ 930,411  
                         
Operating income     $ 172,471     $ 2,008     $ 116,294     $     $ 290,773  
                         
Net income attributable to Global Payments     $ 110,740     $ 2,008     $ 114,496     $ (48,931 )   $ 178,313  
                         
Diluted earnings per share attributable to Global Payments4     $ 0.71                 $ 1.15  
 
 
      Three Months Ended September 30, 2016
      GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

 

Income

Taxes on

Adjustments3

  Non-GAAP
Revenues     $ 951,885     $ (123,449 )   $     $     $ 828,436  
                         
Operating income     $ 120,389     $     $ 129,554     $     $ 249,943  
                         
Net income attributable to Global Payments     $ 55,510     $     $ 127,723     $ (45,308 )   $ 137,925  
                         
Diluted earnings per share attributable to Global Payments4     $ 0.36                 $ 0.89  
                               

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. For the three months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the three months ended September 30, 2017 include $84.9 million in cost of service and $31.4 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $84.5 million, $0.3 million of acquisition and integration costs and employee termination costs of $0.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.9 million, acquisition and integration costs of $21.2 million and employee termination costs of $0.3 million.

 

Earnings adjustments to operating income for the three months ended September 30, 2016 include $87.0 million in cost of service and $42.6 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $86.2 million and employee termination costs and other adjustments of $0.8 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.4 million, acquisition and integration costs of $34.0 million and employee termination costs and other adjustments of $0.2 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 September 30, 2017 reflect the removal of a $7.7 million tax benefit associated with the vesting of share-based awards.

 

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)
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)

 
      Nine Months Ended September 30, 2017
      GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

 

Income

Taxes on

Adjustments3

  Non-GAAP
Revenues     $ 2,920,910     $ (338,679 )   $     $     $ 2,582,231  
                         
Operating income     $ 409,293     $ 2,008     $ 355,959     $     $ 767,260  
                         
Net income attributable to Global Payments     $ 226,463     $ 2,008     $ 357,372     $ (133,129 )   $ 452,714  
                         
Diluted earnings per share attributable to Global Payments4     $ 1.47                 $ 2.94  
   
   
      Nine Months Ended September 30, 2016
      GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

 

Income

Taxes on

Adjustments3

  Non-GAAP
Revenues     $ 2,420,789     $ (396,443 )   $     $     $ 2,024,346  
                         
Operating income     $ 276,122     $     $ 305,627     $     $ 581,749  
                         
Net income attributable to Global Payments     $ 177,654     $     $ 260,596     $ (102,514 )   $ 335,736  
                         
Diluted earnings per share attributable to Global Payments4     $ 1.23                 $ 2.32  
                               

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. For the nine months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the nine months ended September 30, 2017 include $252.8 million in cost of service and $103.2 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $250.7 million, employee termination costs of $1.8 million and acquisition and integration costs of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $31.1 million, acquisition and integration costs of $69.2 million and employee termination costs of $2.9 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 nine months ended September 30, 2016 include $176.1 million in cost of service and $129.5 million in selling, general and administrative expenses. Adjustments to cost of service represent amortization of acquired intangibles of $175.0 million and employee termination costs and other adjustments of $1.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $25.0 million, acquisition and integration costs of $94.0 million, litigation related costs of $7.6 million and employee termination costs and other adjustments of $2.9 million. 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 nine months ended September 30, 2017 reflect the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability and the removal of a $4.0 million tax benefit associated with the vesting of share-based awards. For the nine months ended September 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 SEPTEMBER 30, 2017 AND 2016
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)

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

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP   GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP
Revenues:                                    
North America       $ 764,902     $ (79,126 )   $     $ 685,776     $ 718,977     $ (100,265 )   $     $ 618,712  
Europe       205,203     (29,370 )       175,833     173,246     (23,184 )       150,062  
Asia-Pacific       68,802             68,802     59,662             59,662  
        $ 1,038,907     $ (108,496 )   $     $ 930,411     $ 951,885     $ (123,449 )   $     $ 828,436  
                                     
Operating income:                                    
North America       $ 138,345     $ 2,008     $ 76,517     $ 216,870     $ 110,983     $     $ 77,214     $ 188,197  
Europe       76,214         6,916     83,130     63,727         7,290     71,017  
Asia-Pacific       20,032         2,165     22,197     14,657         2,634     17,291  
Corporate       (62,120 )       30,696     (31,424 )   (68,978 )       42,416     (26,562 )
        $ 172,471     $ 2,008     $ 116,294     $ 290,773     $ 120,389     $     $ 129,554     $ 249,943  
                                                                     

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. For the three months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the three months ended September 30, 2017 include $84.9 million in cost of service and $31.4 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $84.5 million, $0.3 million of acquisition and integration costs and employee termination costs of $0.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.9 million, acquisition and integration costs of $21.2 million and employee termination costs of $0.3 million.

 

Earnings adjustments to operating income for the three months ended September 30, 2016 include $87.0 million in cost of service and $42.6 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $86.2 million and employee termination costs and other adjustments of $0.8 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.4 million, acquisition and integration costs of $34.0 million and employee termination costs and other adjustments of $0.2 million.

 

See "Non-GAAP Financial Measures" discussion on Schedule 10.

 
 
 
 
 
 

SCHEDULE 9
RECONCILIATION OF SEGMENT NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)

 
        Nine Months Ended September 30, 2017   Nine Months Ended September 30, 2016
        GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP   GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP
Revenues:                                    
North America       $ 2,162,911     $ (255,241 )   $     $ 1,907,670     $ 1,770,957     $ (335,277 )   $     $ 1,435,680  
Europe       557,258     (83,438 )       473,820     479,620     (61,166 )       418,454  
Asia-Pacific       200,741             200,741     170,212             170,212  
        $ 2,920,910     $ (338,679 )   $     $ 2,582,231     $ 2,420,789     $ (396,443 )   $     $ 2,024,346  
                                     
Operating income:                                    
North America       $ 344,604     $ 2,008     $ 227,779     $ 574,391     $ 258,648     $     $ 150,654     $ 409,302  
Europe       196,394         22,911     219,305     172,293         27,319     199,612  
Asia-Pacific       57,321         5,435     62,756     40,266         8,755     49,021  
Corporate       (189,026 )       99,834     (89,192 )   (195,085 )       118,899     (76,186 )
        $ 409,293     $ 2,008     $ 355,959     $ 767,260     $ 276,122     $     $ 305,627     $ 581,749  
                                                                     

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. For the nine months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the nine months ended September 30, 2017 include $252.8 million in cost of service and $103.2 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $250.7 million, employee termination costs of $1.8 million and acquisition and integration costs of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $31.1 million, acquisition and integration costs of $69.2 million and employee termination costs of $2.9 million.

 

Earnings adjustments to operating income for the nine months ended September 30, 2016 include $176.1 million in cost of service and $129.5 million in selling, general and administrative expenses. Adjustments to cost of service represent amortization of acquired intangibles of $175.0 million and employee termination costs and other adjustments of $1.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $25.0 million, acquisition and integration costs of $94.0 million, litigation related costs of $7.6 million and employee termination costs and other adjustments of $2.9 million.

 

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 Outlook   % Change
Revenues:                
GAAP revenue       $ 3.37     $3.945 to $3.97   17% to 18%
Adjustments1         (0.53 )   (0.44 )    
Adjusted net revenue       $ 2.84     $3.505 to $3.53   23% to 24%
                 
Earnings Per Share ("EPS"):                
GAAP diluted EPS       $ 1.37     $1.97 to $2.05   44% to 50%
Acquisition-related amortization expense, share-based compensation expense and other items2         1.82     1.97      
Adjusted EPS       $ 3.19     $3.94 to $4.02   24% to 26%
                     

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. For 2017, includes adjustments to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

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. For 2017, includes the revenue adjustment described above and adjustments for acquisition-related amortization expense, share-based compensation expense, acquisition and integration costs, employee termination costs and certain income tax benefits.

 
 
 

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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