Global Payments Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Global Payments is a global payments technology company reporting Merchant Solutions, Issuer Solutions and Consumer Solutions. Segment presentation was realigned in Q3; prior-year segment figures were recast.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.285B | $2.202B | $6.723B | $6.330B |
| Operating income | $386.4M | $400.1M | $232.5M | $1.038B |
| Net income (loss) attributable to Global Payments | $290.5M | $296.7M | ($137.8M) | $757.0M |
| Diluted EPS | $1.05 | $1.01 | ($0.49) | $2.56 |
| Consolidated operating margin | 16.9% | 18.2% | 3.5% | 16.4% |
- Q3 revenue grew 3.8%; nine-month revenue grew 6.2%. Growth reflected higher transaction volumes, customer growth, greater digital-payment use and economic recovery, partly offset by adverse foreign exchange and weaker Consumer Solutions revenue.
- Q3 revenue by segment: Merchant Solutions $1.596B, up 6.7%; Issuer Solutions $566.0M, up 3.8%; Consumer Solutions $147.3M, down 19.7%. For nine months, Merchant revenue rose 11.0%, Issuer rose 4.2%, and Consumer fell 21.5%.
- Q3 operating income declined 3.4%, while Merchant and Issuer segment operating margins improved to 34.5% and 17.2%, respectively. Consumer Solutions revenue and operating income declined.
- Nine-month results included an $833.1M goodwill impairment and $201.1M in business-disposition losses, including a $127.2M Russia sale loss and $73.9M related to the planned consumer-business sale. These items drove the reported operating-income decline and net loss.
- Interest and other expense was $135.2M in Q3 and $327.7M for nine months, up from $82.2M and $245.9M, respectively. The increase reflected higher average borrowings and interest rates, including $17.3M of bridge-facility commitment fees.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $1.535B, versus $2.028B a year earlier. Management attributed the decrease primarily to timing-related movements in operating assets and liabilities, including settlement balances and payables.
- Investing activities used $486.9M, including $463.4M of capital expenditures. Financing activities used $804.6M, including $2.140B of share repurchases and $208.1M of dividends.
- At September 30, cash and cash equivalents were $1.994B; management identified $1.113B as available for general purposes. Restricted cash was $132.5M. Management said cash, borrowing capacity and expected operating cash flows should meet existing operating and planned needs.
- Total long-term debt carrying value was $13.448B, including $1.158B current and $12.290B noncurrent, compared with $11.493B at year-end 2021. The company issued $2.5B of senior notes and $1.5B of 1.0% convertible notes during Q3. A new $5.75B revolving facility had $2.5B of available commitments and no borrowings outstanding at quarter-end. Settlement lines had $440.9M outstanding and $1.8B of additional capacity.
- The company reported compliance with its debt covenants at quarter-end. The revolver requires a maximum leverage ratio of 3.75:1 and minimum interest coverage of 3.00:1.
Material changes, outlook and risks
- On July 31, 2022, Global Payments agreed to sell its Consumer Solutions business for $1B, subject to closing adjustments. Seller financing includes $350M and $325M secured term loans and a $50M revolving facility. Closing was expected before the end of Q1 2023, subject to approvals and customary conditions.
- On August 1, 2022, the company agreed to acquire EVO Payments for $34 per share, approximately $3.4B cash consideration and about $4B enterprise value. Closing was expected before the end of Q1 2023, subject to shareholder, regulatory and other approvals. If the acquisition does not close, specified 2027 and 2029 notes must be redeemed at 101% of principal plus accrued interest.
- Management expected 2022 capital expenditures to remain a similar percentage of revenue as in 2021. The filing provides no clear quantified revenue or EPS guidance.
- Management cited foreign-exchange pressure: currency movements reduced revenue by approximately $57.1M and operating income by $24.0M in Q3, and reduced nine-month revenue by $114.0M and operating income by $40.4M. Further dollar strength, inflation and rising interest rates could weigh on results and asset recoverability.
- Other disclosed risks include uncertain consumer and business spending, COVID-19 developments, geopolitical disruption and sanctions, cybersecurity and operational failures, integration and transaction risks, and the possibility of additional impairment or divestiture charges. The company said ordinary-course litigation was not expected to have a material adverse effect.
- The board increased the remaining share-repurchase authorization to $1.5B on October 27, 2022 and declared a $0.25-per-share dividend payable December 30, 2022.
Important facts for investors to verify
- Whether the consumer-business sale and EVO acquisition close on expected terms and timing, and the resulting cash proceeds, seller-financing exposure and funding needs.
- How much of the nine-month reported loss and operating-income decline reflects impairment and disposal charges versus underlying segment performance.
- Whether transaction growth and Merchant Solutions margins can offset Consumer Solutions weakness, foreign-exchange headwinds and higher expenses.
- Debt maturities, interest costs, revolver availability and covenant headroom as the company finances the EVO transaction.
- The assumptions behind goodwill valuations and the risk of further impairment, particularly given the filing’s sensitivity to share price, discount rates and economic conditions.
- Execution of planned repurchases and dividends alongside acquisition funding, capital expenditures and liquidity requirements.