Global Payments Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Global Payments provides payment technology, software and services through Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $2.137B | $1.672B | $4.127B | $3.576B |
| Operating income | $362.6M | $107.6M | $637.8M | $351.6M |
| Operating margin | 17.0% | 6.4% | 15.5% | 9.8% |
| Net income attributable to Global Payments | $263.6M | $37.3M | $460.3M | $180.9M |
| Diluted EPS | $0.89 | $0.12 | $1.55 | $0.60 |
- Q2 revenue rose 27.8%; first-half revenue rose 15.4%. Management attributed the increases primarily to higher transaction volumes as pandemic restrictions eased, against a prior-year period significantly affected by COVID-19.
- Q2 segment revenue: Merchant Solutions $1.427B (+42.5%); Issuer Solutions $505.9M (+7.6%); Business and Consumer Solutions $227.4M (+4.9%). Merchant Solutions drove most of the quarterly revenue increase.
- Operating income and margin improved with higher revenue and merger-related cost synergies. Cost of service fell to 43.8% of revenue in Q2 from 53.5%; SG&A was 39.2% versus 40.1%.
- Interest and other expense was $80.6M in Q2 and $163.7M for the first half. First-half effective tax rate was 16.8%, compared with 9.0% in 2020; the prior-year rate was unusually low. Equity-method investment income also increased, contributing to net income growth.
Cash flow, debt and liquidity
- First-half operating cash flow was $1.110B, versus $960.3M a year earlier. Investing activities used $1.162B, including $943.1M for acquisitions and $219.6M in capital expenditures. Financing activities used $91.8M.
- Cash and cash equivalents were $1.800B at June 30, 2021, down from $1.946B at year-end 2020. Management identified $970.3M as available for general purposes; this excludes settlement-related balances, merchant reserves and customer funds. Restricted cash was $140.2M.
- Total long-term debt, including its current portion, was $10.270B, compared with $9.294B at December 31, 2020. The company had $717M drawn on its revolving facility and $2.0B outstanding under its term loan. It reported $2.3B of available revolving commitments and compliance with applicable debt covenants.
- First-half share repurchases were $1.073B and dividends paid were $114.9M. The board later increased share repurchase authorization to $1.5B and declared a $0.25-per-share dividend payable in September 2021.
Material changes, outlook and risks
- On June 10, the company acquired Zego for approximately $932.8M in cash, funded with cash and revolving-credit borrowing. The purchase-price allocation was provisional; recorded goodwill was $525.9M. The acquisition expands the company into real-estate technology and payments.
- In February, Global Payments issued $1.1B of 1.2% senior notes due 2026, using proceeds in part to redeem 3.8% notes due 2021 and repay revolving debt.
- Management expected continued economic recovery through 2021, while cautioning that COVID-19 severity, duration, variants and government responses remained uncertain. It expected 2021 capital expenditures and other business investment to return to pre-pandemic levels. The filing provides no specific numerical revenue or EPS guidance.
- Merger integration continued; first-half acquisition and integration expenses were $170.1M in SG&A, and management expected additional integration charges in 2021. Cumulative merger-related employee termination charges were $178.7M at June 30.
- Risks cited include pandemic-related disruption, integration execution and realization of synergies, competition, payment-network and regulatory requirements, cybersecurity and data protection, credit and fraud risks, foreign exchange, interest rates, and access to capital.
- The company reported ordinary-course legal matters not expected to have a material adverse effect. A Georgia appellate court reversed the Frontline judgment, including its $135.2M damages award, on June 30; the company said the reversal did not affect its financial statements.
Investor verification points
- Assess how much of the strong year-over-year growth reflects recovery from COVID-affected 2020 comparisons versus durable transaction growth.
- Track Zego’s final purchase-price allocation, contribution to results, integration and expected strategic benefits.
- Monitor debt, revolver usage, acquisition funding, cash available for general purposes, and covenant headroom.
- Review operating margins alongside continuing integration costs, acquired-intangible amortization and the pace of merger synergies.
- Evaluate the sensitivity of results and liquidity to renewed pandemic disruption and the company’s planned return to pre-COVID investment levels.