Global Payments Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 19, 2021. The filing is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars; financial results are presented in millions unless noted.
Business context and reporting period
Global Payments provides payment processing, payments technology and software in more than 100 countries. Its three segments are Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions. The 2019 TSYS merger materially affects year-over-year comparisons: 2020 includes a full year of TSYS operations, while 2019 includes TSYS only from the September 18, 2019 acquisition date.
Key financial metrics
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Revenue | $7,423.6 | $4,911.9 | +51.1%; primarily reflects a full year of TSYS. COVID-19 reduced transaction volumes from mid-March, with improvement in the latter half. |
| Operating income | $894.0 | $791.4 | +13.0% |
| Operating margin | 12.0% | 16.1% | Lower, reflecting increased acquired-intangible amortization, integration costs and pandemic effects. |
| Net income attributable to Global Payments | $584.5 | $430.6 | Higher, including increased equity-method investment income. |
| Diluted EPS | $1.95 | $2.16 | Lower, in part because merger consideration increased the weighted-average share count. |
| Operating cash flow | $2,314.2 | $1,391.3 | Higher, primarily reflecting earnings and noncash charges associated with acquired operations. |
| Capital expenditures | $436.2 | $307.9 | Increased investment in technology, infrastructure and platform consolidation. |
| Cash and cash equivalents | $1,945.9 | $1,678.3 | Only $1,100.9 was considered available for general purposes; settlement, merchant-reserve and customer funds are excluded. |
| Long-term debt | $9,293.8 | $9,125.5 | Includes current maturities; additional settlement lines of credit were $358.7 at year-end. |
Fourth-quarter 2020 revenue was $1,930.2 million versus $1,987.8 million in fourth-quarter 2019; operating income was $252.0 million versus $196.2 million; net income attributable to Global Payments was $182.6 million versus $102.8 million; and diluted EPS was $0.61 versus $0.34. The periods are affected by the timing of the TSYS merger and integration expenses.
Segments and material changes
- Merchant Solutions: Revenue of $4,688.3 million, up 14.4%; operating income of $1,162.7 million and segment margin of 24.8%, down from 28.0%.
- Issuer Solutions: Revenue of $1,981.4 million and operating income of $277.7 million, largely reflecting TSYS operations included for a full year.
- Business and Consumer Solutions: Revenue of $829.5 million and operating income of $138.6 million, also substantially reflecting acquired TSYS operations. Stimulus-related card loads partly offset reduced consumer spending.
- Cost of service rose to 49.2% of revenue from 42.2%, with acquired-intangible amortization increasing to $1,256.9 million from $667.1 million. Acquisition and integration expenses were $320.0 million in 2020 versus $255.6 million in 2019.
- Interest and other expense increased to $343.5 million from $304.9 million. The effective tax rate was 13.0%, compared with 12.0%.
Liquidity, debt and capital allocation
Management said cash, borrowing capacity under the senior unsecured revolving facility and expected operating cash flows should meet foreseeable operating and planned requirements. The company had $2.1 billion of available commitments under its $3.0 billion revolving facility at year-end and was in compliance with applicable debt covenants. A $1.0 billion 2.900% senior note due 2030 was issued in May 2020; debt maturities included $806.8 million due in 2021. Restricted cash was $143.9 million.
Cash used in financing activities was $1,546.1 million, including $631.1 million of share repurchases, $233.2 million of dividends and $578.2 million to increase its interest in Comercia from 51% to 80%. The board increased repurchase authorization to $1.5 billion in January 2021; the company subsequently entered a $500 million accelerated share repurchase agreement.
Outlook, risks and unusual items
- Management expected COVID-19 to continue adversely affecting revenue and earnings in 2021, while anticipating a steady, progressive economic recovery. No numerical 2021 earnings or revenue guidance is provided in the supplied filing text.
- Management anticipated additional merger-related integration charges in 2021. Cost synergies and cost-saving measures helped results, but pandemic restrictions and renewed outbreaks could slow recovery.
- Principal risks include cybersecurity incidents and service interruptions; competition and pricing pressure; reliance on card networks, sponsor banks and clearing institutions; fraud, chargebacks and customer credit losses; regulation and privacy requirements; acquisition integration; foreign-exchange and variable-rate debt exposure; and substantial indebtedness.
- Goodwill and other intangible assets represented approximately 81% of total assets. The 2020 impairment tests found no impairment, but Issuer Solutions and Business and Consumer Solutions reporting units had fair values approximating their carrying amounts.
- A Georgia jury awarded Frontline Processing $135.2 million plus interest in a contract dispute. Global Payments appealed; the appeal was pending. The company considered a loss reasonably possible, but not probable, and recorded no liability.
- The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting. The auditor identified revenue recognition for Issuer Solutions contracts and payment-processing revenue systems as critical audit matters.
Important facts for investors to verify
- Separate acquisition-driven growth from underlying organic performance, including transaction volumes and recovery trends by segment.
- Track integration spending, synergy realization and the effect of acquired-intangible amortization on reported margins and EPS.
- Review cash available for general use versus settlement and customer balances, upcoming debt maturities, and the company’s capacity to fund buybacks, dividends and investment.
- Monitor COVID-19 impacts, merchant credit and fraud losses, goodwill headroom in recently acquired reporting units, and the outcome of the Frontline appeal.