Global Payments Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Global Payments provides payment technology and services through Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $1.990 billion | $1.904 billion | +4.5% |
| Operating income | $275.3 million | $244.0 million | +12.8% |
| Operating margin | 13.8% | 12.8% | +1.0 percentage point |
| Net income attributable to Global Payments | $196.7 million | $143.6 million | +37.0% |
| Diluted EPS | $0.66 | $0.48 | +37.5% |
| Operating cash flow | $599.4 million | $436.6 million | +$162.8 million |
Merchant Solutions revenue rose 4.3% to $1.268 billion; Issuer Solutions revenue declined 0.7% to $500.3 million; and Business and Consumer Solutions revenue increased 19.4% to $243.6 million. Growth reflected higher transaction volumes as COVID-19 restrictions eased and, in Business and Consumer Solutions, increased spending that included U.S. stimulus payments.
Cost of service fell 0.9% to $925.2 million, or 46.5% of revenue versus 49.1%. SG&A rose 8.8% to $789.5 million, or 39.7% of revenue versus 38.1%, mainly reflecting variable selling costs, higher acquisition and integration expense, and share-based compensation. Acquisition and integration expenses were $91.8 million, including $90.1 million in Corporate, compared with $71.6 million overall in Q1 2020.
Cash, debt, and capital
Cash and cash equivalents were $2.082 billion at March 31, 2021, compared with $1.946 billion at year-end. Management identified $1.113 billion as available for general purposes; restricted cash was $119.7 million. Operating cash flow less capital expenditures was approximately $513.2 million, calculated from reported figures. Capital expenditures were $86.2 million.
Total debt carrying value was $9.692 billion, including $64.5 million current debt; long-term debt excluding the current portion was $9.627 billion. The company issued $1.1 billion of 1.200% senior notes due 2026, using proceeds to redeem 3.800% notes due 2021, repay revolving borrowings, and for general purposes. Revolver borrowings were $124.0 million, with $2.1 billion of availability. The company reported compliance with its debt covenants. Interest expense was $81.2 million.
Financing activities included $803.0 million of common-stock repurchases and $57.6 million of dividends paid. The $500 million accelerated repurchase program concluded during the quarter; $901.0 million of repurchase authorization remained at quarter-end. The board declared a $0.195-per-share dividend payable in June.
Outlook, risks, and notable items
- Management expected COVID-19 to continue adversely affecting revenue and earnings in 2021, while anticipating recovery over the year. Restrictions and the pace of recovery varied by geography; pandemic duration and effects remained uncertain.
- Management expected 2021 capital expenditures and other business investments to return to pre-COVID levels, while retaining flexibility to adjust investment.
- Merger integration continued, and management expected additional integration charges in 2021. Reported cumulative employee termination-benefit charges related to integration were $165.6 million at quarter-end.
- On May 4, 2021, the company announced a planned acquisition of Zego for approximately $925 million in cash, expected to close by the end of Q2 subject to regulatory approval and customary conditions. Funding was expected from cash and the revolving credit facility.
- In the Frontline Processing litigation, the company disclosed a jury award of $135.2 million plus interest. Its appeal was pending; management assessed a loss between zero and the judgment amount plus interest as reasonably possible, but not probable, and recorded no liability.
- Other risks highlighted include transaction-volume and economic uncertainty, integration execution and savings realization, competition, payment-network and regulatory requirements, cybersecurity and fraud risks, and foreign-exchange and interest-rate exposure. A portion of debt and hedges referenced LIBOR; the company was evaluating the benchmark’s discontinuance.
Most important facts for investors to verify
- Whether revenue and transaction-volume recovery persisted after stimulus-related spending and easing of restrictions, particularly in Issuer Solutions.
- How much of operating-margin improvement came from sustainable synergies versus temporary COVID-related cost actions, and the level of remaining integration charges.
- Debt, cash available for general purposes, and liquidity following the planned Zego acquisition and continued share repurchases.
- Actual Zego purchase price, closing and funding terms, integration risks, and expected contribution to results.
- Developments in the Frontline appeal and the potential range of any eventual loss.