Global Payments Reports Third Quarter 2018 Earnings and Increases 2018 Outlook

October 30, 2018

ATLANTA--(BUSINESS WIRE)--Oct. 30, 2018-- Global Payments Inc. (NYSE: GPN) today announced results for the third quarter ended September 30, 2018.

“We delivered double digit organic growth at the high end of our expectations in the third quarter, highlighting ongoing consistent execution,” said Jeff Sloan, Chief Executive Officer. “Our strategy of technology enablement continued to generate share gains fueled by strong momentum in our integrated and vertical markets and ecommerce and omnichannel businesses, which each again grew double digits in the quarter.”

Sloan concluded, “We also made significant investments to advance our software-driven payments strategy in the healthcare, restaurant and food service vertical markets, which we expect to contribute approximately five percentage points toward our technology-enabled revenue target and position us to further accelerate growth into 2019 and the next decade.”

Third Quarter 2018 Summary

  • GAAP revenues were $857.7 million, compared to $1,038.9 million in the third quarter of 2017; diluted earnings per share were $1.11 compared to $0.71 in the prior year; and operating margin was 26.0% compared to 16.6% in the third quarter of 2017; 2018 results reflect the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
  • Adjusted net revenue plus network fees grew 12% to $1,025.0 million, compared to $914.0 million in the third quarter of 2017.

  • Adjusted earnings per share grew 25% to $1.44, compared to $1.15 in the third quarter of 2017.

  • Adjusted operating margin expanded 120 basis points to 33%.

2018 Outlook

“We are delighted with our performance in the third quarter and year-to-date period, which positions us well to exceed our expectations for the year, despite facing incremental pressure from foreign currency exchange rates,” stated Cameron Bready, Senior Executive Vice President and Chief Financial Officer. “We now expect adjusted net revenue plus network fees to range from $3.96 billion to $3.98 billion, or growth of 15% over 2017, and adjusted earnings per share to be in a range of $5.12 to $5.22, reflecting growth of 28% to 30% over 2017. 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 28, 2018 to shareholders of record as of December 14, 2018.

Conference Call

Global Payments’ management will host a conference call today, October 30, 2018 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, and other measures, 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 and software solutions delivering innovative services to our customers globally. Our technologies, services and employee expertise enable us to provide a broad range of solutions that allow our customers to accept all payment types and operate their businesses more efficiently across a variety of distribution channels in many markets around the world.

Headquartered in Atlanta, Georgia with approximately 11,000 employees worldwide, Global Payments is a member of the S&P 500 with customers and partners in 31 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 other statements that are not historical facts, 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; development of anticipated market trends and technologies; 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 or fully realizing cost savings and other benefits of our 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 Report on Form 10-K for the year ended December 31, 2017 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,
      2018     2017     % Change     2018     2017     % Change
                                     
Revenues(1)     $ 857,670       $ 1,038,907       NM       $ 2,485,811       $ 2,920,910       NM  
                                     
Operating expenses(1):                                    
Cost of service     265,013       493,883       NM       781,943       1,418,969       NM  
Selling, general and administrative     369,495       372,553       NM       1,133,799       1,092,648       NM  
      634,508       866,436       NM       1,915,742       2,511,617       NM  
                                     
Operating income     223,162       172,471       29.4 %     570,069       409,293       39.3 %
                                     
Interest and other income     3,134       2,347       33.5 %     17,397       5,787       NM  
Interest and other expense     (46,356 )     (40,764 )     13.7 %     (139,681 )     (130,422 )     7.1 %
      (43,222 )     (38,417 )     12.5 %     (122,284 )     (124,635 )     (1.9 )%
                                     
Income before income taxes     179,940       134,054       34.2 %     447,785       284,658       57.3 %
Benefit from (provision for) income taxes     6,089       (15,692 )     NM       (46,441 )     (40,893 )     13.6 %
Net income     186,029       118,362       57.2 %     401,344       243,765       64.6 %
Net income attributable to noncontrolling interests, net of income tax     (9,659 )     (7,622 )     26.7 %     (24,506 )     (17,302 )     41.6 %
Net income attributable to Global Payments     $ 176,370       $ 110,740       59.3 %     $ 376,838       $ 226,463       66.4 %
                                     
Earnings per share attributable to Global Payments:                                    
Basic     $ 1.12       $ 0.72       55.6 %     $ 2.37       $ 1.48       60.1 %
Diluted     $ 1.11       $ 0.71       56.3 %     $ 2.36       $ 1.47       60.5 %
                                     
Weighted-average number of shares outstanding:                                    
Basic     158,168       154,560             158,827       153,138        
Diluted     158,706       155,402             159,459       154,079        
                                             

NM - Not Meaningful

     
(1)   Global Payments adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606") on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income. Also, ASC 606 changed the presentation of revenue for our gaming cash advance solutions and had a de minimis impact on revenue from our European business. For our gaming cash advance solutions, certain amounts we previously presented as operating expenses are now recognized as a reduction of revenue under GAAP. As a result of adopting ASC 606, results for 2018 and 2017 revenues and operating expenses are not comparable, thus the changes from the prior year are not meaningful.
     
             

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,
      2018     2017     % Change     2018     2017     % Change
                                     
Adjusted net revenue plus network fees     $ 1,024,979     $ 914,027     12.1 %     $ 2,931,759     $ 2,533,401     15.7 %
                                     
Adjusted operating income     $ 338,703     $ 290,773     16.5 %     $ 928,190     $ 767,260     21.0 %
                                     
Adjusted net income attributable to Global Payments     $ 227,961     $ 178,313     27.8 %     $ 614,783     $ 452,714     35.8 %
                                     
Adjusted diluted earnings per share attributable to Global Payments     $ 1.44     $ 1.15     25.2 %     $ 3.86     $ 2.94     31.3 %
                                             

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, 2018     September 30, 2017     % Change
      GAAP    

Non-GAAP(1)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees(1)(2)

    GAAP     Non-GAAP(1)    

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees(1)(2)

    GAAP(3)     Non-GAAP(3)    

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees(1)(2)

                                                       
Revenues:                                                      
North America     $ 643,715       $ 580,268       $ 755,816     $ 764,902       $ 685,776       $ 668,285     NM       NM       13.1 %
Europe     157,584       157,584       193,753     205,203       175,833       176,940     NM       NM       9.5 %
Asia-Pacific     56,371       56,371       75,410     68,802       68,802       68,802     NM       NM       9.6 %
      $ 857,670       $ 794,223       $ 1,024,979     $ 1,038,907       $ 930,411       $ 914,027     NM       NM       12.1 %
                                                       
Operating income:                                                      
North America     $ 174,012       $ 259,075             $ 138,345       $ 216,870             25.8 %     19.5 %      
Europe     85,781       92,184             76,214       83,130             12.6 %     10.9 %      
Asia-Pacific     23,692       25,438             20,032       22,197             18.3 %     14.6 %      
Corporate     (60,323 )     (37,994 )           (62,120 )     (31,424 )           (2.9 )%     20.9 %      
      $ 223,162       $ 338,703             $ 172,471       $ 290,773             29.4 %     16.5 %      
                         
                         
      Nine Months Ended                  
      September 30, 2018     September 30, 2017     % Change
      GAAP     Non-GAAP(1)    

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees(1)(2)

    GAAP     Non-GAAP(1)    

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees(1)(2)

    GAAP(3)     Non-GAAP(3)    

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees(1)(2)

                                                       
Revenues:                                                      
North America     $ 1,859,545       $ 1,652,014       $ 2,150,895     $ 2,162,911       $ 1,907,670       $ 1,856,228     NM       NM       15.9 %
Europe     456,492       456,492       554,798     557,258       473,820       476,432     NM       NM       16.4 %
Asia-Pacific     169,774       169,774       226,066     200,741       200,741       200,741     NM       NM       12.6 %
      $ 2,485,811       $ 2,278,280       $ 2,931,759     $ 2,920,910       $ 2,582,231       $ 2,533,401     NM       NM       15.7 %
                                                       
Operating income:                                                      
North America     $ 446,600       $ 705,811             $ 344,604       $ 574,391             29.6 %     22.9 %      
Europe     239,011       260,015             196,394       219,305             21.7 %     18.6 %      
Asia-Pacific     67,043       74,556             57,321       62,756             17.0 %     18.8 %      
Corporate     (182,585 )     (112,192 )           (189,026 )     (89,192 )           (3.4 )%     25.8 %      
      $ 570,069       $ 928,190             $ 409,293       $ 767,260             39.3 %     21.0 %      
NM - Not Meaningful
     
(1)   See Schedules 8 and 9 for a reconciliation of adjusted net revenue, adjusted net revenue plus network fees and adjusted operating income by segment to the most comparable GAAP measures and Schedule 10 for a discussion of non-GAAP financial measures.
     
(2)   Global Payments adopted ASC 606 on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income. Also, ASC 606 changed the presentation of revenue for our gaming cash advance solutions and had a de minimis impact on revenue from our European business. For our gaming cash advance solutions, certain amounts we previously presented as operating expenses are now recognized as a reduction of revenue under GAAP.
     
(3)   As a result of adopting ASC 606, results for 2018 and 2017 revenues and adjusted net revenue are not comparable, thus the change from the prior year is not meaningful.
     
             

SCHEDULE 4

UNAUDITED CONSOLIDATED BALANCE SHEETS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except share data)

             
     

September 30,
2018

   

December 31,
2017

             
ASSETS            
Current assets:            
Cash and cash equivalents     $ 990,604       $ 1,335,855  
Accounts receivable, net of allowances for doubtful accounts of $3,495 and $1,827, respectively     321,664       301,887  
Settlement processing assets     2,894,226       2,459,292  
Prepaid expenses and other current assets     207,496       206,545  
Total current assets     4,413,990       4,303,579  
Goodwill     6,130,921       5,703,992  
Other intangible assets, net     2,278,968       2,181,707  
Property and equipment, net     640,976       588,348  
Deferred income taxes     9,237       13,146  
Other noncurrent assets     365,144       207,297  
Total assets     $ 13,839,236       $ 12,998,069  
             
LIABILITIES AND EQUITY            
Current liabilities:            
Settlement lines of credit     $ 685,878       $ 635,166  
Current portion of long-term debt     92,689       100,308  
Accounts payable and accrued liabilities     1,065,435       1,039,607  
Settlement processing obligations     2,423,069       2,040,509  
Total current liabilities     4,267,071       3,815,590  
Long-term debt     4,707,510       4,559,408  
Deferred income taxes     516,357       436,879  
Other noncurrent liabilities     172,730       220,961  
Total liabilities     9,663,668       9,032,838  
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; 158,186,371 issued and outstanding at September 30, 2018 and 159,180,317 issued and outstanding at December 31, 2017            
Paid-in capital     2,250,828       2,379,774  
Retained earnings     1,994,003       1,597,897  
Accumulated other comprehensive loss     (270,545 )     (183,144 )
Total Global Payments shareholders’ equity     3,974,286       3,794,527  
Noncontrolling interests     201,282       170,704  
Total equity     4,175,568       3,965,231  
Total liabilities and equity     $ 13,839,236       $ 12,998,069  
                     
       

SCHEDULE 5

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

       
      Nine Months Ended
      September 30, 2018     September 30, 2017
             
Cash flows from operating activities:            
Net income     $ 401,344       $ 243,765  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization of property and equipment     105,734       80,868  
Amortization of acquired intangibles     263,714       249,095  
Share-based compensation expense     44,937       30,771  
Provision for operating losses and bad debts     32,309       37,203  
Amortization of capitalized contract costs     37,281       32,863  
Deferred income taxes     (4,973 )     (51,093 )
Other, net     (17,185 )     34,190  
Changes in operating assets and liabilities, net of the effects of acquisitions:            
Accounts receivable     (27,696 )     (6,070 )
Settlement processing assets and obligations, net     (58,693 )     (232,713 )
Prepaid expenses and other assets     (117,824 )     (78,302 )
Accounts payable and other liabilities     2,058       19,546  
Net cash provided by operating activities     661,006       360,123  
Cash flows from investing activities:            
Business and other acquisitions, net of cash acquired     (769,082 )     (563,009 )
Capital expenditures     (156,060 )     (136,612 )
Proceeds from sales of property and equipment     131       37,520  
Other, net     (2,514 )     (48,056 )
Net cash used in investing activities     (927,525 )     (710,157 )
Cash flows from financing activities:            
Net borrowings of settlement lines of credit     49,381       77,397  
Proceeds from long-term debt     1,606,214       1,713,324  
Repayments of long-term debt     (1,468,505 )     (1,386,721 )
Payment of debt issuance costs     (12,544 )     (9,520 )
Repurchase of common stock     (180,897 )     (32,811 )
Proceeds from stock issued under share-based compensation plans     12,571       7,068  
Common stock repurchased - share-based compensation plans     (44,824 )     (21,171 )
Distributions to noncontrolling interests     (5,686 )     (9,301 )
Dividends paid     (4,750 )     (5,141 )
Net cash (used in) provided by financing activities     (49,040 )     333,124  
Effect of exchange rate changes on cash     (29,692 )     40,181  
(Decrease) increase in cash and cash equivalents     (345,251 )     23,271  
Cash and cash equivalents, beginning of the period     1,335,855       1,162,779  
Cash and cash equivalents, end of the period     $ 990,604       $ 1,186,050  
                     
       

SCHEDULE 6

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

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

       
      Three Months Ended September 30, 2018
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

   

Income
Taxes on
Adjustments(3)

    Non-GAAP    

Network
Fees(4)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                           
Revenues     $ 857,670       $ (63,447 )     $       $       $ 794,223       $ 230,756       $ 1,024,979
                                           
Operating income     $ 223,162       $ 1,196       $ 114,345       $       $ 338,703              
                                           
Net income attributable to Global Payments     $ 176,370       $ 1,196       $ 112,896       $ (62,501 )     $ 227,961              
                                           
Diluted earnings per share attributable to Global Payments     $ 1.11                         $ 1.44              
                                           
Diluted weighted average shares outstanding     158,706                         158,706              
                                           
      Three Months Ended September 30, 2017
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

   

Income
Taxes on
Adjustments(3)

    Non-GAAP    

Gaming
Cash
Advance/
Other(4)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                           
Revenues     $ 1,038,907       $ (108,496 )     $       $       $ 930,411       $ (16,384 )     $ 914,027
                                           
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 Payments     $ 0.71                         $ 1.15              
                                           
Diluted weighted average shares outstanding     155,402                         155,402              
(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, 2018 and September 30, 2017, includes $1.2 million and $2.0 million, respectively to eliminate the effect of acquisition accounting fair value adjustments for software-related contract liabilities associated with the acquisition of ACTIVE Network.
     
(2)  

For the three months ended September 30, 2018, earnings adjustments to operating income include $88.6 million in cost of service (COS) and $25.8 million in selling, general and administrative (SG&A) expenses. Adjustments to COS include amortization of acquired intangibles of $88.0 million, acquisition and integration expenses of $0.4 million, and employee termination benefits of $0.2 million. Adjustments to SG&A include share-based compensation expense of $14.9 million, acquisition and integration expenses of $7.8 million and employee termination benefits of $3.1 million.

     

 

 

For the three months ended September 30, 2017, earnings adjustments to operating income include $84.9 million in COS and $31.4 million in SG&A. Adjustments to COS include amortization of acquired intangibles of $84.5 million and other adjustments of $0.4 million. Adjustments to SG&A include share-based compensation expense of $9.9 million and acquisition and integration expenses of $21.5 million.

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

 

 

For the three months ended September 30, 2018, also includes the removal of a $31.5 million income tax benefit related to tax reform true-ups and the removal of a tax benefit associated with the vesting of share-based awards. For the three months ended September 30, 2017, includes the removal of a tax benefit associated with the vesting of share-based awards.

   

 

(4)  

Global Payments adopted ASC 606 on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income. For 2017, payment network fees were presented within operating expenses and in 2018 payment network fees are presented as a reduction of revenues. As a result, adjusted net revenue plus network fees for the three months ended September 30, 2018 is presented on a basis that is comparable to the prior year. Adjusted net revenue plus network fees for the three months ended September 30, 2017 includes an adjustment for our gaming cash advance solutions and other de minimis amounts for our European business to present it on a basis that is comparable to the current year.

     

 

 

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

     
       

SCHEDULE 7

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

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

       
      Nine Months Ended September 30, 2018
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

   

Income
Taxes on
Adjustments(3)

    Non-GAAP     Network Fees(4)    

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                           
Revenues     $ 2,485,811       $ (207,531 )     $       $       $ 2,278,280       $ 653,479       $

2,931,759

                                           
Operating income     $ 570,069       $ 7,065       $ 351,056       $       $ 928,190              
                                           
Net income attributable to Global Payments     $ 376,838       $ 7,065       $ 341,921       $ (111,042 )     $ 614,782              
                                           
Diluted earnings per share attributable to Global Payments     $ 2.36                         $ 3.86              
                                           
Diluted weighted average shares outstanding     159,459                         159,459              
                                           
      Nine Months Ended September 30, 2017
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

   

Income
Taxes on
Adjustments(3)

    Non-GAAP    

Gaming
Cash
Advance/
Other(4)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                           
Revenues     $ 2,920,910       $ (338,679 )     $       $       $ 2,582,231       $ (48,830 )     $ 2,533,401
                                           
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 Payments     $ 1.47                         $ 2.94              
                                           
Diluted weighted average shares outstanding     154,079                         154,079              

(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, 2018 and September 30, 2017, includes $7.1 million and $2.0 million, respectively to eliminate the effect of acquisition accounting fair value adjustments for software-related contract liabilities associated with the acquisition of ACTIVE Network.
     

(2)

  For the nine months ended September 30, 2018 earnings adjustments to operating income include $269.6 million in cost of service (COS) and $81.4 million in selling, general and administrative (SG&A) expenses. Adjustments to COS include amortization of acquired intangibles of $265.4 million, acquisition and integration expenses of $1.4 million, employee termination benefits of $1.2 million and other adjustments of $1.6 million. Adjustments to SG&A include share-based compensation expense of $44.9 million, acquisition and integration expenses of $33.2 million and employee termination benefits of $3.3 million. Net income attributable to Global Payments also reflects an adjustment to remove a $9.6 million gain recognized on the reorganization of Interac Association, of which we were a member through one of our Canadian subsidiaries, and a charge of $5.2 million associated with the refinancing of our corporate credit facility.
     

 

 

For the nine months ended September 30, 2017, earnings adjustments to operating income include $252.8 million in COS and $103.2 million in SG&A. Adjustments to COS include amortization of acquired intangibles of $250.7 million and employee termination benefits of $1.7 million and other adjustments of $0.4 million. Adjustments to SG&A include share-based compensation expense of $31.1 million, acquisition and integration expenses of $69.5 million and employee termination benefits of $2.6 million. Net income attributable to Global Payments also reflects an adjustment to remove a charge of $6.8 million associated with the refinancing of our corporate credit facility.

     

(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.
     

 

 

For the nine months ended September 30, 2018, also includes the removal of a $32.6 million income tax benefit related to tax reform true-ups, a $4.7 million tax expense associated with certain discrete tax items related to the impact of changes in state effective income tax rates on deferred liabilities and a tax benefit related to vesting of share-based awards. For the nine months ended September 30, 2017, includes the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability and a tax benefit related to vesting of share-based awards.

     

(4)

  Global Payments adopted ASC 606 on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income.
     

 

 

For 2017, payment network fees were presented within operating expenses and in 2018 payment network fees are presented as a reduction of revenues. As a result, adjusted net revenue plus network fees for the nine months ended September 30, 2018 is presented on a basis that is comparable to the prior year. Adjusted net revenue plus network fees for the nine months ended September 30, 2017 includes an adjustment for our gaming cash advance solutions and other de minimis amounts for our European business to present it on a basis that is comparable to the current year.

     

 

 

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

     
       

SCHEDULE 8

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

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

       
      Three Months Ended September 30, 2018
      GAAP    

Net Revenue
Adjustments (1)

   

Earnings
Adjustments(2)

    Non-GAAP    

Network Fees(3)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                     
Revenues:                                    
North America     $ 643,715       $ (63,447 )     $       $ 580,268       $ 175,548       $ 755,816
Europe     157,584                   157,584       36,169       193,753
Asia-Pacific     56,371                   56,371       19,039       75,410
      $ 857,670       $ (63,447 )     $       $ 794,223       $ 230,756       $ 1,024,979
                                     
Operating income:                                    
North America     $ 174,012       $ 1,196       $ 83,867       $ 259,075              
Europe     85,781             6,403       92,184              
Asia-Pacific     23,692             1,746       25,438              
Corporate     (60,323 )           22,329       (37,994 )            
      $ 223,162       $ 1,196       $ 114,345       $ 338,703              
                                     
      Three Months Ended September 30, 2017
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

    Non-GAAP    

Gaming Cash
Advance/
Other(3)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                     
Revenues:                                    
North America     $ 764,902       $ (79,126 )     $       $ 685,776       $ (17,491 )     $ 668,285
Europe     205,203       (29,370 )           175,833       1,107       176,940
Asia-Pacific     68,802                   68,802             68,802
      $ 1,038,907       $ (108,496 )     $       $ 930,411       $ (16,384 )     $ 914,027
                                     
Operating income:                                    
North America     $ 138,345       $ 2,008       $ 76,517       $ 216,870              
Europe     76,214             6,916       83,130              
Asia-Pacific     20,032             2,165       22,197              
Corporate     (62,120 )           30,696       (31,424 )            
      $ 172,471       $ 2,008       $ 116,294       $ 290,773              
(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, 2018 and September 30, 2017, includes $1.2 million and $2.0 million, respectively to eliminate the effect of acquisition accounting fair value adjustments for software-related contract liabilities associated with the acquisition of ACTIVE Network.
     
(2)   For the three months ended September 30, 2018, earnings adjustments to operating income include $88.6 million in cost of service (COS) and $25.8 million in selling, general and administrative (SG&A) expenses. Adjustments to COS include amortization of acquired intangibles of $88.0 million, acquisition and integration expenses of $0.4 million, and employee termination benefits of $0.2 million. Adjustments to SG&A include share-based compensation expense of $14.9 million, acquisition and integration expenses of $7.8 million and employee termination benefits of $3.1 million.
     
    For the three months ended September 30, 2017, earnings adjustments to operating income include $84.9 million in COS and $31.4 million in SG&A. Adjustments to COS include amortization of acquired intangibles of $84.5 million and other adjustments of $0.4 million. Adjustments to SG&A include share-based compensation expense of $9.9 million and acquisition and integration expenses of $21.5 million.
     
(3)   Global Payments adopted ASC 606 on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income.
     
   

For 2017, payment network fees were presented within operating expenses and in 2018 payment network fees are presented as a reduction of revenues. As a result, adjusted net revenue plus network fees for the three months ended September 30, 2018 is presented on a basis that is comparable to the prior year. Adjusted net revenue plus network fees for the three months ended September 30, 2017 includes an adjustment for our gaming cash advance solutions and other de minimis amounts for our European business to present it on a basis that is comparable to the current year.

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

SCHEDULE 9

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

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

       
      Nine Months Ended September 30, 2018
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

    Non-GAAP    

Network
Fees(3)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                     
Revenues:                                    
North America     $ 1,859,545       $ (207,531 )     $       $ 1,652,014       $ 498,881       $ 2,150,895
Europe     456,492                   456,492       98,306       554,798
Asia-Pacific     169,774                   169,774       56,292       226,066
      $ 2,485,811       $ (207,531 )     $       $ 2,278,280       $ 653,479       $ 2,931,759
                                     
Operating income:                                    
North America     $ 446,600       $ 7,065       $ 252,146       $ 705,811              
Europe     239,011             21,004       260,015              
Asia-Pacific     67,043             7,513       74,556              
Corporate     (182,585 )           70,393       (112,192 )            
      $ 570,069       $ 7,065       $ 351,056       $ 928,190              
                                     
      Nine Months Ended September 30, 2017
      GAAP    

Net Revenue
Adjustments(1)

   

Earnings
Adjustments(2)

    Non-GAAP    

Gaming Cash
Advance/
Other(3)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

                                     
Revenues:                                    
North America     $ 2,162,911       $ (255,241 )     $       $ 1,907,670       $ (51,442 )     $ 1,856,228
Europe     557,258       (83,438 )           473,820       2,612       476,432
Asia-Pacific     200,741                   200,741             200,741
      $ 2,920,910       $ (338,679 )     $       $ 2,582,231       $ (48,830 )     $ 2,533,401
                                     
Operating income:                                    
North America     $ 344,604       $ 2,008       $ 227,779       $ 574,391              
Europe     196,394             22,911       219,305              
Asia-Pacific     57,321             5,435       62,756              
Corporate     (189,026 )           99,834       (89,192 )            
      $ 409,293       $ 2,008       $ 355,959       $ 767,260              

(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, 2018 and September 30, 2017, includes $7.1 million and $2.0 million, respectively to eliminate the effect of acquisition accounting fair value adjustments for software-related contract liabilities associated with the acquisition of ACTIVE Network.
     

(2)

  For the nine months ended September 30, 2018, earnings adjustments to operating income include $269.6 million in cost of service (COS) and $81.4 million in selling, general and administrative (SG&A) expenses. Adjustments to COS include amortization of acquired intangibles of $265.4 million, acquisition and integration expenses of $1.4 million, employee termination benefits of $1.2 million and other adjustments of $1.6 million. Adjustments to SG&A include share-based compensation expense of $44.9 million, acquisition and integration expenses of $33.2 million and employee termination benefits of $3.3 million.
     
    For the nine months ended September 30, 2017, earnings adjustments to operating income include $252.8 million in COS and $103.2 million in SG&A. Adjustments to COS include amortization of acquired intangibles of $250.7 million and employee termination benefits of $1.7 million and other adjustments of $0.4 million. Adjustments to SG&A include share-based compensation expense of $31.1 million, acquisition and integration expenses of $69.5 million and employee termination benefits of $2.6 million.
     

(3)

  Global Payments adopted ASC 606 on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income.
     
    For 2017, payment network fees were presented within operating expenses and in 2018 payment network fees are presented as a reduction of revenues. As a result, adjusted net revenue plus network fees for the nine months ended September 30, 2018 is presented on a basis that is comparable to the prior year. Adjusted net revenue plus network fees for the nine months ended September 30, 2017 includes an adjustment for our gaming cash advance solutions and other de minimis amounts for our European business to present it on a basis that is comparable to the current year.
     
    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)

                     
      2017 Actual     2018 Outlook     % Change
                     
Revenues:                    
GAAP revenues     $3.98       $3.36 to $3.38       NM
Adjustments(1)     (0.46 )     (0.28 )      
Adjusted net revenue     $3.52       $3.08 to $3.10       NM
                     
Gaming cash advance / other(2)     ($0.07 )     $—        
Network fees(2)           0.88        
Adjusted net revenue plus network fees     $3.45       $3.96 to $3.98       15%
                     
Earnings per share ("EPS"):                    
GAAP diluted EPS(3)     $3.01       $3.19 to $3.29        
Adjustments(4)     1.00       1.93        
Adjusted diluted EPS     $4.01       $5.12 to $5.22       28% to 30%
(1)   Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefit to the company. As a result of the adoption of ASC 606 effective January 1, 2018, no adjustment is necessary for our European wholesale business as GAAP revenues in 2018 are presented net of these payments. The 2018 Outlook adjustment is $0.18 billion lower as a result of this change. See footnote 2. Amounts also include adjustments to eliminate the effect of acquisition accounting fair value adjustments for software-related contract liabilities associated with the acquisition of ACTIVE Network.
     
(2)   Global Payments adopted ASC 606 on January 1, 2018. The new accounting standard changed the presentation of certain amounts that we pay to third parties, including payment networks. This change in presentation affected our reported GAAP revenues and operating expenses by the same amount and had no effect on operating income. For 2017, payment network fees were presented within operating expenses and in 2018 payment network fees are presented as a reduction of revenues. As a result, adjusted net revenue plus network fees for 2018 are presented on a basis that is comparable to the prior year. Adjusted net revenue plus network fees for 2017 includes an adjustment for our gaming cash advance solutions and other de minimis amounts for our European business to present it on a basis that is comparable to the current year.
     
(3)   ASC 606 also changes the amount and timing of revenue and expenses to be recognized under certain of our customer arrangements, the effect of which is reflected in the outlook for GAAP diluted EPS for 2018.
     
(4)   Adjustments to 2017 GAAP diluted EPS include the ACTIVE Network revenue adjustment described above, acquisition related amortization expense of $2.19, share-based compensation expense of $0.25 and net other items of $0.68, including acquisition and integration expense of $0.61. Adjustments to 2017 GAAP diluted EPS also includes the effect of these adjustments on noncontrolling interests and income taxes, as applicable. In addition, these adjustments reflect the removal of income tax benefit of $1.02 representing the effects of U.S. Tax Cuts and Jobs Act of 2017.
     

NM - Not Meaningful

 

NON-GAAP FINANCIAL MEASURES

Global Payments supplements revenues, income and EPS information determined in accordance with U.S. GAAP by providing these measures, and other 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 and adjusted net revenue plus network fees more closely reflect the economic benefits to the company's core business and, in the case of adjusted net revenue, 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 net revenue plus network fees, adjusted operating income, adjusted operating margin, 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. Beginning in 2018, adjusted operating margin is derived by dividing adjusted operating income by adjusted net revenue plus network fees. 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.

 

Source: Global Payments Inc.

Global Payments Inc.
Investor contact:
Winnie Smith, 770-829-8478
investor.relations@globalpay.com
or
Media contact:
Kimberly Mann, 770-829-8755
media.relations@globalpay.com