Global Payments Inc. — Form 10-Q Summary
Business and reporting period. Global Payments provides payment technology and digital commerce services in 29 countries, operating through North America, Europe and Asia-Pacific segments. This unaudited filing covers the quarter and six months ended November 30, 2015; comparisons are with the corresponding 2014 periods. Share and per-share data reflect the November 2015 two-for-one stock split.
Financial performance
| Metric | Three months ended Nov. 30, 2015 | Year-over-year change | Six months ended Nov. 30, 2015 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $722.4 million | +3.6% | $1,471.1 million | +4.9% |
| Operating income | $123.2 million | −0.7% | $260.9 million | +5.1% |
| Operating margin | 17.1% | 17.8% prior year | 17.7% | Unchanged |
| Net income attributable to Global Payments | $78.8 million | +5.3% | $165.4 million | +10.2% |
| Diluted EPS | $0.60 | +9.1% | $1.27 | +15.5% |
Quarterly revenue growth was achieved despite a $36.0 million unfavorable currency impact; the six-month currency impact was $82.7 million. Quarterly operating income was slightly lower as expenses grew faster than revenue and corporate costs increased. Six-month operating income improved, with operating margin flat year over year.
Segments. In the quarter, North America revenue grew 4.6%, Europe revenue declined 1.2%, and Asia-Pacific revenue grew 9.2%. For the six months, revenue grew 5.0% in North America, 1.1% in Europe and 18.4% in Asia-Pacific. The company attributed Asia-Pacific growth and improved six-month segment profitability partly to the Ezidebit acquisition. Currency effects weighed on Europe and Canada.
Cash flow and liquidity. Operating cash flow was $454.1 million for the six months, versus $226.9 million a year earlier. Investing cash outflow was $278.2 million, including acquisitions; capital expenditures were $36.2 million. Financing cash inflow was $185.7 million. Cash and cash equivalents were $988.5 million at November 30, but management identified only $216.1 million as available cash, excluding settlement-related and merchant-reserve balances. The company expects fiscal 2016 capital expenditures of approximately $105 million.
Debt. Long-term debt was $1.916 billion and settlement-funding lines of credit were $685.2 million at November 30. The company refinanced its facilities in July with a $1.75 billion term loan and a $1.25 billion revolving facility; $424.7 million of incremental revolving capacity was available. It reported compliance with applicable covenants. A 100-basis-point increase in applicable interest rates was estimated to raise annual interest expense by approximately $7.7 million, after considering swaps.
Material changes, outlook and risks
- Revenue growth reflected U.S. direct-channel and integrated-solutions growth, acquisitions and transaction-volume growth in parts of Europe; foreign exchange materially reduced reported growth.
- Acquisitions and strategic investments included the FIS Gaming Business for $237.5 million and a venture with Bank of the Philippine Islands. A Central and Eastern Europe venture, requiring a stated €30 million cash investment, was expected to close in the second half of fiscal 2016, subject to approvals and other conditions.
- On December 15, 2015, after the reporting date, Global Payments agreed to acquire Heartland Payment Systems for a stated transaction value of approximately $4.3 billion. The company expected closing in fiscal 2016’s fourth quarter, subject to shareholder, regulatory and other conditions. Financing commitments of up to $4.78 billion were obtained; management said the anticipated borrowing would significantly increase debt and interest expense. The filing gives no earnings guidance.
- Visa’s proposed acquisition of Visa Europe could provide Global Payments preliminary consideration of €30 million in cash and preferred stock valued at approximately $21.4 million at announcement, with possible earn-out consideration. Amounts and composition were not final; some cash could be refundable and the preferred-stock conversion value could be reduced, potentially to zero, due to litigation outcomes.
- Principal disclosed risks include foreign-currency and interest-rate exposure; payment-system interruptions, data security and compliance risks; competition and merchant attrition; and execution, financing, dilution, integration and closing risks associated with Heartland. No legal proceedings were reported in this filing.
Important facts for investors to verify
- Whether Heartland’s required approvals and closing conditions are satisfied, and the final financing terms, debt level, interest burden, share issuance and integration costs.
- Underlying organic and constant-currency growth, particularly the degree to which reported growth depends on acquisitions and offsets currency headwinds.
- Cash availability after distinguishing operating cash from settlement and merchant-reserve balances, and the effect of settlement timing on operating cash flow.
- Progress and final economics of the Central and Eastern Europe venture and the Visa Europe consideration, including litigation-related adjustments.
- Debt covenant headroom, refinancing requirements and sensitivity to variable interest rates.