Global Payments Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Global Payments provides payment technology and services through its Merchant Solutions and Issuer Solutions segments. The consumer portion of Netspend was sold during the quarter; results include that business through its April 26 disposal date.
Key financial results
| Metric | Q2 2023 | Q2 2022 |
|---|---|---|
| Revenue | $2.452 billion | $2.281 billion |
| Operating income (loss) | $602.7 million | $(529.9) million |
| Operating margin | 24.6% | (23.2)% |
| Net income (loss) attributable to Global Payments | $274.1 million | $(673.0) million |
| Diluted EPS | $1.05 | $(2.42) |
- Revenue rose 7.5% year over year, driven mainly by higher transaction volumes and EVO acquisition revenue, partly offset by divestitures. Merchant Solutions revenue increased 16.5%; Issuer Solutions rose 5.5%.
- Merchant Solutions operating margin was 32.8%, down from 33.8%; Issuer Solutions margin improved to 16.2% from 13.8%. Management cited revenue growth and expense discipline, while EVO weighed on Merchant Solutions margin.
- Q2 results included a $104.1 million gain on the gaming-business sale. For the first half, operating income also reflected a $243.2 million loss on the consumer-business disposition. The prior-year comparison included an $833.1 million goodwill impairment and a $127.2 million loss on the Russia business sale.
- Interest and other expense was $191.4 million in Q2, up from $99.2 million, reflecting higher average debt and rates and an $18.2 million initial credit-loss charge on seller-financed loans. The Q2 effective tax rate was 39.2%; disposition-related tax effects contributed to the elevated rate.
Cash flow, debt and liquidity
- For the six months, operating cash flow was $1.164 billion, compared with $1.198 billion in 2022. Investing used $4.002 billion, mainly reflecting $4.101 billion of acquisition spending; capital expenditures were $331.0 million. Financing provided $2.701 billion.
- At June 30, cash and cash equivalents were $1.920 billion. Management identified $683.5 million as available for general purposes; this excludes settlement-related balances, merchant reserves and customer funds. Restricted cash was $193.3 million.
- Total debt was approximately $17.051 billion, including $1.982 billion drawn on the revolving facility and $1.842 billion of commercial paper. The company reported $1.9 billion of remaining revolving-facility commitments and was in compliance with applicable covenants. The EVO acquisition temporarily raised the permitted leverage ratio to 4.50x, with a gradual step-down to 3.75x.
- Debt increased substantially from year-end, principally in connection with EVO and related financing. The company issued €800 million of 4.875% senior notes due 2031 and established a $2.0 billion commercial-paper program. A $1.5 billion interest-rate swap program hedges a portion of variable-rate borrowings.
Transactions, outlook and risks
- Global Payments acquired EVO on March 24 for total consideration of $4.270 billion. Acquisition accounting remains provisional; acquired goodwill was $3.198 billion. Integration and acquisition expenses were $67.5 million in Q2 and $168.9 million for the first half.
- The consumer Netspend business sold for approximately $1 billion and the gaming business for approximately $400 million, both subject to closing adjustments. Seller financing includes $675 million of consumer-business loans and a $50 million revolving facility, plus a $32 million note related to the gaming sale. The consumer loans carry significant credit risk; the reported fair value of all notes receivable was $714.4 million versus $769.2 million aggregate principal outstanding, including PIK interest.
- No quantified revenue or EPS guidance is provided in the supplied filing text. Management expects 2023 capital expenditures to grow at a rate similar to revenue growth and says current and projected liquidity should meet near- and long-term operating needs.
- Management identifies exposure to macroeconomic conditions, inflation, interest and foreign-exchange rates, integration costs, cybersecurity and operational failures, payment-network requirements, competition, and access to financing. It also notes that approximately 75% of cash and cash equivalents was held with a small group of financial institutions. Legal claims are described as not expected to have a material adverse effect.
- Disclosure controls were considered effective as of June 30; EVO was to be incorporated into the internal-control program within applicable regulatory timelines.
Investor verification priorities
- Assess EVO’s post-acquisition contribution, integration costs, provisional purchase-price allocations and expected benefits; reported results include only the period after acquisition.
- Review leverage, refinancing needs and interest costs, including commercial-paper rollover dependence, covenant headroom and the scheduled debt maturities.
- Evaluate collectibility and valuation of seller-financed loans, including PIK interest, borrower credit quality, collateral and the $18.2 million initial allowance.
- Separate recurring operating performance from divestiture gains and losses, prior-year impairment charges, acquisition costs and the effects of the consumer-business disposal.
- Confirm the basis for management’s cash-availability estimate and monitor settlement, customer-fund, banking-counterparty and foreign-exchange exposures.