Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
    
FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 30, 2018
 
 
 
Commission file number 001-16111

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GLOBAL PAYMENTS INC.
(Exact name of registrant as specified in charter)
 
Georgia
 
58-2567903
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

 
3550 Lenox Road, Atlanta, Georgia
 
30326
(Address of principal executive offices)
 
(Zip Code)
 

Registrant’s telephone number, including area code:     (770) 829-8000
 


(Former name, former address and former fiscal year, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Item 2.02.    Results of Operations and Financial Condition

On October 30, 2018, Global Payments Inc. (the "Company") issued a press release announcing its financial results for the quarter ended September 30, 2018. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K (this "Report") and is incorporated herein by reference.

The information being furnished pursuant to Item 2.02 of this Report, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, except as expressly set forth by specific reference in such filing.

Item 9.01.    Financial Statements and Exhibits
(d) Exhibits
Exhibit No.
Description
99.1








Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
GLOBAL PAYMENTS INC.
 
 
 
 
 
Date:
October 30, 2018
By: /s/ Cameron M. Bready
 
 
 
Cameron M. Bready
 
 
 
Senior Executive Vice President and Chief Financial Officer
 



    






Exhibit


PRESS RELEASE
 
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Global Payments Reports Third Quarter 2018 Earnings and
Increases 2018 Outlook

ATLANTA, October 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."

1




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.
 

2



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


3



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.












4



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.




5



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.

6



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



7



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



8



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.

9



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.

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.

11



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.

12



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.


13