Global Payments Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Global Payments provides payment technology and services through Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2.202 billion | $1.918 billion | $6.330 billion | $5.493 billion |
| Operating income | $400.1 million | $290.4 million | $1.038 billion | $642.0 million |
| Operating margin | 18.2% | 15.1% | 16.4% | 11.7% |
| Net income attributable to Global Payments | $296.7 million | $221.0 million | $757.0 million | $401.9 million |
| Diluted EPS | $1.01 | $0.74 | $2.56 | $1.34 |
Revenue increased 14.8% in Q3 and 15.2% year to date. Management attributed growth chiefly to higher transaction volumes as economies reopened and digital payments expanded. Operating income and margin improved, with revenue growth and merger-related cost synergies contributing; higher acquisition and integration costs, amortization, and compensation partly offset the gains. Merchant Solutions was the largest growth contributor: revenue rose 20.3% in Q3 and 21.1% year to date. Issuer Solutions revenue increased 7.1% and 4.6%, respectively; Business and Consumer Solutions increased 1.7% and 8.6%.
Cash flow, liquidity, and debt
- For the first nine months, operating cash flow was $2.028 billion, compared with $1.545 billion in 2020. Investing activities used $1.296 billion, including $946.4 million for acquisitions and $350.7 million in capital expenditures. Financing activities used $310.2 million.
- Cash and cash equivalents were $2.348 billion at September 30, 2021. The company identified $1.109 billion as available for general purposes; settlement-related balances, merchant reserves, and customer funds are not included in that figure. Restricted cash was $120.9 million.
- Long-term debt, including its current portion, was $10.749 billion, versus $9.294 billion at December 31, 2020. This included $2.0 billion under the term loan and $1.222 billion under the revolving facility. Settlement lines of credit had $588.3 million outstanding. The company reported $1.8 billion of availability under its revolving facility and compliance with its financial covenants.
- Share repurchases totaled $1.834 billion and dividends paid were $188.2 million year to date. A further $949.2 million of repurchase authorization remained at quarter-end.
Material changes, outlook, and risks
- Global Payments acquired Zego, a real estate technology and digital commerce business, on June 10 for approximately $933 million in cash. The company said the deal expands its software-led business into a new vertical; acquisition accounting remained provisional at quarter-end.
- The company issued $1.1 billion of 1.20% senior notes due 2026, using proceeds to redeem 2021 notes, repay revolving debt, and for general corporate purposes.
- Management said it expects significant capital investment to continue and anticipated approximately $900 million of cash outlays for acquisitions expected to close in Q4 2021 under signed purchase agreements. It stated that cash, borrowing capacity, and expected operating cash flows should meet foreseeable needs. The filing provides no specific earnings or revenue guidance.
- COVID-19 recovery supported results, but management emphasized uncertainty from potential resurgences, variants, restrictions, and the duration and severity of the pandemic. Other cited risks include integration execution and realizing merger synergies, competition, cybersecurity and data protection, payment-network requirements, financing availability, and foreign-exchange and interest-rate exposure.
- Merger-related acquisition and integration expenses were $71.6 million in Q3 and $241.6 million year to date. Cumulative merger-related employee termination charges were $183.4 million; further obligations and expenses could arise as integration continues.
- Interest and other income was lower than in 2020 partly because the prior-year period included a $27.3 million gain from conversion of Visa Europe preferred shares. A Georgia jury’s $135.2 million judgment against the company in the Frontline dispute was reversed on appeal in June 2021. The company said other legal matters were not expected to have a material adverse effect.
Key facts for investors to verify
- How much of reported revenue and margin growth reflects underlying transaction recovery, acquisitions, and merger synergies, and whether the improvement persists.
- Whether the planned Q4 acquisitions close as expected, their funding requirements, and the terms and integration costs of those transactions.
- Debt levels, revolving-credit availability, covenant headroom, and the amount of cash genuinely available after settlement and customer-related balances.
- The continuing effect of merger integration, acquisition costs, share-based compensation, and substantial share repurchases on earnings and capital allocation.
- Developments in COVID-19 conditions, payment-industry regulation and network requirements, cybersecurity risks, and material litigation or contingencies.