Global Payments Inc.
Aug 3, 2017

Global Payments Reports Second Quarter 2017 Earnings and Increases 2017 Outlook

Announces Agreement to Acquire ACTIVE Network

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

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

Second Quarter 2017 Summary

2017 Outlook

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

Capital Allocation

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

Conference Call

Global Payments' management will host a conference call today, August 3, 2017 at 8:00 a.m. ET to discuss financial results and business highlights. Callers may access the conference call via the investor relations page of the company's website at www.globalpaymentsinc.com; or callers in North America may dial 877-674-6428 and callers outside North America may dial 970-315-0457. A replay of the call will be archived on the company's website within two hours of the live call.

Non-GAAP Financial Measures

Global Payments supplemented revenues, income and earnings per share information determined in accordance with GAAP by providing those measures on an adjusted basis in this earnings release to assist with evaluating performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of our operations.

Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release.

About Global Payments

Global Payments Inc. (NYSE: GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our technologies, partnerships and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world.

Headquartered in Atlanta, Georgia with more than 8,500 employees worldwide, Global Payments is a member of the S&P 500 with merchants and partners in 30 countries throughout North America, Europe, the Asia-Pacific region and Brazil. For more information about Global Payments, our Service. Driven. Commerce brand and our technologies, please visit www.globalpaymentsinc.com.

Forward-Looking Statements

This announcement and comments made by Global Payments' management during the conference call may contain certain forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including revenue, earnings estimates and management's expectations regarding future events and developments, and statements about the proposed acquisition of ACTIVE Network, including future financial and operating results, the combined company's plans, objectives, expectations and intentions are forward-looking statements and are subject to significant risks and uncertainties.

Important factors that may cause actual events or results to differ materially from those anticipated by such forward-looking statements include our ability to safeguard our data; increased competition from larger companies and non-traditional competitors, our ability to update our services in a timely manner; our ability to maintain Visa and MasterCard registration and financial institution sponsorship; our reliance on financial institutions to provide clearing services in connection with our settlement activities; our potential failure to comply with card network requirements; potential systems interruptions or failures; software defects or undetected errors; increased attrition of merchants, referral partners or independent sales organizations; our ability to increase our share of existing markets and expand into new markets; a decline in the use of cards for payment generally; unanticipated increases in chargeback liability; increases in credit card network fees; change in laws, regulations or network rules or interpretations thereof; foreign currency exchange and interest rate risks; political, economic and regulatory changes in the foreign countries in which we operate; future performance, integration and conversion of acquired operations; including without limitation difficulties and delays in integrating the Heartland business or fully realizing cost savings and other benefits of the acquisition at all or within the expected time period; fully realizing anticipated annual interest expense savings from refinancing our corporate debt facilities; our loss of key personnel and other risk factors presented in Item 1- Risk Factors of our Transition Report on Form 10-K for the seven months ended December 31, 2016 and any subsequent SEC filings, which we advise you to review. Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.

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

     

SCHEDULE 1

UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

 
 
Three Months Ended   Six Months Ended  

June 30,
2017

   

June 30,
2016

   

%
Change

 

June 30,
2017

   

June 30,
2016

   

%
Change

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

NM - Not meaningful.

 
     

SCHEDULE 2

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

 
Three Months Ended Six Months Ended

June 30,
2017

   

June 30,
2016

    % Change

June 30,
2017

   

June 30,
2016

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

SCHEDULE 3

SEGMENT INFORMATION (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

 

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

Non-
GAAP1

GAAP    

Non-
GAAP1

GAAP

Non-
GAAP1

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

Non-
GAAP1

GAAP    

Non-
GAAP1

GAAP

Non-
GAAP1

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

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

   

SCHEDULE 4

UNAUDITED CONSOLIDATED BALANCE SHEETS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except share data)

 
June 30, 2017 December 31, 2016
 
ASSETS
Current assets:
Cash and cash equivalents $ 1,080,576 $ 1,162,779
Accounts receivable, net of allowances for doubtful accounts of $1,295 and $1,092 respectively 283,640 275,032
Claims receivable, net of allowances for doubtful accounts of $6,616 and $5,786, respectively 4,513 8,202
Settlement processing assets 999,946 1,546,854
Prepaid expenses and other current assets 147,396   123,139  
Total current assets 2,516,071 3,116,006
Goodwill 4,890,016 4,807,594
Other intangible assets, net 1,927,167 2,085,292
Property and equipment, net 537,879 526,370
Deferred income taxes 16,388 15,789
Other noncurrent assets 149,260   113,299  
Total assets $ 10,036,781   $ 10,664,350  
 
LIABILITIES AND EQUITY
Current liabilities:
Settlement lines of credit $ 318,284 $ 392,072
Current portion of long-term debt 86,510 177,785
Accounts payable and accrued liabilities 823,236 804,887
Settlement processing obligations 870,434   1,477,212  
Total current liabilities 2,098,464 2,851,956
Long-term debt 4,175,411 4,260,827
Deferred income taxes 617,308 676,472
Other noncurrent liabilities 140,960   95,753  
Total liabilities 7,032,143   7,885,008  
Commitments and contingencies
Equity:
Preferred stock, no par value; 5,000,000 shares authorized and none issued
Common stock, no par value; 200,000,000 shares authorized; 152,556,769 issued and outstanding at June 30, 2017 and 152,185,616 issued and outstanding at December 31, 2016
Paid-in capital 1,838,889 1,816,278
Retained earnings 1,255,552 1,137,230
Accumulated other comprehensive loss (243,459 ) (322,717 )
Total Global Payments shareholders' equity 2,850,982 2,630,791
Noncontrolling interests 153,656   148,551  
Total equity 3,004,638   2,779,342  
Total liabilities and equity $ 10,036,781   $ 10,664,350  
 

SCHEDULE 5

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

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

SCHEDULE 6

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

THREE MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

 
Three Months Ended June 30, 2017
GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Income
Taxes on
Adjustments3

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

Net Revenue
Adjustments1

Earnings
Adjustments2

Income
Taxes on
Adjustments3

Non-GAAP
Revenues $ 842,644 $ (126,334 ) $ $ $ 716,310
 
Operating income $ 61,161 $ $ 139,011 $ $ 200,172
 
Net income attributable to Global Payments $ 62,233 $ $ 96,877 $ (44,847 ) $ 114,263
 
Diluted earnings per share attributable to Global Payments4 $ 0.42 $ 0.76
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company.
 
2 Earnings adjustments to operating income for the three months ended June 30, 2017 include $81.6 million of amortization of acquired intangibles in cost of service and $34.2 million in selling, general and administrative expenses, consisting of share-based compensation expense of $12.3 million and merger-related costs of $21.9 million. Net income attributable to Global Payments also reflects an adjustment to remove a non-cash charge of $6.8 million associated with the refinancing of our corporate credit facility.
 
Earnings adjustments to operating income for the three months ended June 30, 2016 include $68.0 million in cost of service and $71.0 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $67.7 million and other adjustments of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.6 million, merger-related costs of $51.3 million, litigation related costs of $7.6 million, employee termination benefits of $2.1 million and $0.4 million of other adjustments. Net income attributable to Global Payments also reflects an adjustment to remove a gain on the sale of membership interests in Visa Europe of $41.2 million.
 
3 Income taxes on adjustments reflect the tax effect of earnings adjustments to income before income taxes. The tax rate used in determining the tax impact of earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment. In addition, income taxes on adjustments for the three months ended June 30, 2017 reflect the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability. For the three months ended June 30, 2016, income taxes on adjustments reflect the removal of a $10.9 million tax benefit associated with our decision to indefinitely reinvest earnings in Canada.
 
4 Adjusted EPS is calculated by dividing adjusted net income attributable to Global Payments by the diluted weighted-average number of shares outstanding.
 
See "Non-GAAP Financial Measures" discussion on Schedule 10.
 

SCHEDULE 7

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

SIX MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

 
Six Months Ended June 30, 2017
GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Income
Taxes on
Adjustments3

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

Net Revenue
Adjustments1

Earnings
Adjustments2

Income
Taxes on
Adjustments3

Non-GAAP
Revenues $ 1,468,904 $ (272,994 ) $ $ $ 1,195,910
 
Operating income $ 155,734 $ $ 176,074 $ $ 331,808
 
Net income attributable to Global Payments $ 122,144 $ $ 132,874 $ (57,207 ) $ 197,811
 
Diluted earnings per share attributable to Global Payments4 $ 0.87 $ 1.42
1Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company.
 
2 Earnings adjustments to operating income for the six months ended June 30, 2017 include $167.9 million and $71.8 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $166.2 million and employee termination benefits of $1.7 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $21.2 million, merger-related cost of $48.0 million and employee termination benefits of $2.6 million. Net income attributable to Global Payments also reflects an adjustment to remove a non-cash charge of $6.8 million associated with the refinancing of our corporate credit facility.
 
Earnings adjustments to operating income for the six months ended June 30, 2016 include $89.1 million and $86.9 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $88.8 million and other adjustments of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $16.6 million, merger-related costs of $60.0 million, litigation related costs of $7.6 million, employee termination benefits of $2.1 million and $0.6 million of other adjustments. Net income attributable to Global Payments also reflects an adjustment to remove a gain on the sale of membership interests in Visa Europe of $41.2 million.
 
3 Income taxes on adjustments reflect the tax effect of earnings adjustments to income before income taxes. The tax rate used in determining the tax impact of earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment. In addition, income taxes on adjustments for the six months ended June 30, 2017 reflect the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability. For the six months ended June 30, 2016, income taxes on adjustments reflect the removal of a $10.9 million tax benefit associated with our decision to indefinitely reinvest earnings in Canada.
 
4 Adjusted EPS is calculated by dividing adjusted net income attributable to Global Payments by the diluted weighted-average number of shares outstanding.
 
See "Non-GAAP Financial Measures" discussion on Schedule 10.
     

SCHEDULE 8

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

THREE MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

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

Net Revenue
Adjustments1

   

Earnings
Adjustments2

   

Non-
GAAP

GAAP    

Net Revenue
Adjustments1

   

Earnings
Adjustments2

   

Non-
GAAP

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

SCHEDULE 9

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

SIX MONTHS ENDED JUNE 30, 2017 AND 2016

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

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

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Non-
GAAP

GAAP  

Net Revenue
Adjustments1

 

Earnings
Adjustments2

 

Non-
GAAP

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

SCHEDULE 10

OUTLOOK SUMMARY (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In billions, except per share data)

 
2016 Actual 2017 Outlook3 % Change
Revenues:
GAAP revenue $3.37 $3.83 to $3.91 14% to 16%
Adjustments1 (0.53 ) (0.43 )  
Adjusted net revenue $2.84   $3.40 to $3.48 20% to 22%
 
Earnings Per Share ("EPS"):
GAAP diluted EPS $1.37 $1.98 to $2.13 45% to 55%
Acquisition-related amortization expense, share-based compensation expense and other items2 1.82   1.87    
Adjusted EPS $3.19   $3.85 to $4.00 21% to 25%
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company.
 
2 Adjustments to Calendar 2016 GAAP diluted EPS include acquisition related amortization expense of $1.17, share-based compensation expense of $0.14 and net other items of $0.51, including merger-related costs of $0.62, a $0.16 adjustment to remove a gain on the sale of membership interests in Visa Europe and a $0.07 adjustment to remove a tax benefit associated with our decision to indefinitely reinvest earnings in Canada. Adjustments to 2016 GAAP diluted EPS also includes the effect of these adjustments on noncontrolling interests and income taxes, as applicable.
 
3 The 2017 Outlook does not include the effect of the announced acquisition of the communities and sports divisions of ACTIVE Network.

NON-GAAP FINANCIAL MEASURES

 
Global Payments supplements revenues, income and EPS information determined in accordance with U.S. GAAP by providing these measures with certain adjustments (such measures being non-GAAP financial measures) in this document to assist with evaluating our performance. In addition to GAAP measures, management uses these non-GAAP financial measures to focus on the factors the company believes are pertinent to the daily management of our operations. Management believes adjusted net revenue more closely reflects the economic benefits to the company's core business and allows for better comparisons with industry peers. Management uses these non-GAAP financial measures, together with other metrics, to set goals for and measure the performance of the business and to determine incentive compensation. Adjusted net revenue, adjusted operating income, adjusted net income and adjusted EPS should be considered in addition to, and not as substitutes for, revenues, operating income, net income and EPS determined in accordance with GAAP. The non-GAAP financial measures reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.
 
Adjusted net revenue excludes gross-up related payments associated with certain lines of business to reflect economic benefits to the company. On a GAAP basis, these payments are presented gross in both revenues and operating expenses.
 
Adjusted operating income, adjusted net income and adjusted EPS exclude acquisition-related amortization expense, share-based compensation and certain other items specific to each reporting period as more fully described in the accompanying reconciliations in Schedules 6, 7, 8 and 9. The tax rate used in determining the net income impact of earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.

Global Payments Inc.
Investor contact:
Isabel Janci, 770-829-8478
investor.relations@globalpay.com
or
Media contact:
Amy Corn, 770-829-8755
media.relations@globalpay.com

Source: Global Payments Inc.

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