Global Payments Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Global Payments provides payment technology and services globally and reports Merchant Solutions and Issuer Solutions. Results include EVO Payments from its March 24 acquisition and reflect the April sales of the consumer Netspend and gaming businesses; comparisons are therefore affected by acquisitions and divestitures.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $2.476 billion | $2.285 billion | $7.221 billion | $6.723 billion |
| Operating income | $558.2 million | $386.4 million | $1.218 billion | $232.5 million |
| Operating margin | 22.5% | 16.9% | 16.9% | 3.5% |
| Net income attributable to Global Payments | $361.8 million | $290.5 million | $624.9 million | $(137.8) million |
| Diluted EPS | $1.39 | $1.05 | $2.39 | $(0.49) |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $1.591 billion | $1.535 billion |
- Q3 revenue rose 8.3%; nine-month revenue rose 7.4%. Management attributed growth mainly to higher transaction volumes, including EVO, with Merchant Solutions also benefiting from subscription and software revenue growth.
- Q3 Merchant Solutions revenue was $1.884 billion, up 18.0%; Issuer Solutions revenue was $607.8 million, up 7.4%. Segment operating margins were 33.9% and 18.7%, respectively; year-ago margins were 34.5% and 17.2%.
- Q3 operating margin improved year over year, while nine-month comparisons were strongly affected by the $833.1 million goodwill impairment recorded in 2022. Current-year nine-month operating results also include disposition losses and gains.
- Nine-month investing cash outflow was $4.120 billion, mainly due to $4.100 billion of acquisition spending; capital expenditures were $500.8 million. Operating cash flow less capital expenditures was approximately $1.090 billion, calculated from reported figures.
Financial position and liquidity
- At September 30, cash and cash equivalents were $1.942 billion; the company identified $692.7 million as available for general purposes. Restricted cash was $166.9 million. Management notes that settlement-related balances, merchant reserves, and customer funds are not included in generally available cash.
- Long-term debt totaled $16.651 billion, including $1.900 billion of commercial paper and $1.545 billion drawn on the revolving facility. Total debt including the current portion was $16.651 billion; the current portion was $80.1 million. Debt at December 31, 2022 was $13.459 billion.
- The $5.75 billion revolving facility had $2.3 billion of available commitments at quarter-end. Commercial paper carried a 6.07% weighted-average annual interest rate. The company reported compliance with debt covenants.
- Nine-month interest and other expense was $490.5 million, compared with $327.7 million. The increase reflected higher average borrowing levels and interest rates.
Material changes, outlook, and risks
- Global Payments acquired EVO for total consideration of $4.270 billion. Purchase accounting remains provisional; acquired goodwill was $3.231 billion. EVO contributed less than 10% of consolidated revenue and operating income from acquisition through quarter-end.
- The consumer Netspend sale generated a $243.2 million loss for the nine months, while the gaming sale generated a $104.1 million gain. The company provided seller financing, including consumer-business term loans; outstanding notes had $736.1 million principal, including payment-in-kind interest, and an $18.2 million credit-loss allowance. Notes’ estimated fair value was $692.0 million.
- Management expects 2023 capital expenditures of approximately $630 million. The filing does not provide a clear revenue or EPS forecast in the presented text. Management said current and projected liquidity should meet near- and long-term operating requirements.
- Key exposures include inflation, interest rates, foreign exchange, acquisition integration and related costs, cybersecurity and operational failures, payment-network requirements, competition, and credit and fraud risks. Approximately 75% of cash and cash equivalents was held at a small group of financial institutions; the company reported no losses from bank failures or its cash balances during the nine-month period.
- Legal claims incidental to the business were not expected by management to have a material adverse effect. Disclosure controls were assessed as effective; EVO is to be incorporated into the company’s internal-control program under applicable timelines.
Important facts for investors to verify
- How much reported revenue and operating-income growth reflects organic performance versus EVO, divestitures, and foreign exchange.
- Progress integrating EVO, the final purchase-price allocation, and the trajectory of acquisition and integration costs and acquired-intangible amortization.
- Collection performance and credit risk on seller-financed loans, including the large PIK component and the consumer borrowers’ ability to service the debt.
- Debt refinancing needs, commercial-paper rollover capacity, interest expense, and covenant headroom as acquisition-related leverage limits step down.
- Whether management achieves its approximately $630 million capital-expenditure expectation and sustains operating cash generation while funding investment, dividends, and repurchases.