Global Payments Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020. Global Payments provides payment technology and services through Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions. Comparisons with 2019 are materially affected by the September 2019 TSYS merger; 2020 includes TSYS results, while the prior-year periods generally do not.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1,672.0m | $935.2m | $3,575.6m | $1,818.2m |
| Operating income | $107.6m | $221.7m | $351.6m | $421.2m |
| Operating margin | 6.4% | 23.7% | 9.8% | 23.2% |
| Net income attributable to Global Payments | $37.3m | $120.5m | $180.9m | $232.8m |
| Diluted EPS | $0.12 | $0.77 | $0.60 | $1.48 |
- Revenue increased 78.8% in Q2 and 96.7% in the first half, largely reflecting TSYS contributions of $997.0m and $2,052.0m, respectively. COVID-19-related weakness partly offset the acquired revenue.
- Despite TSYS contributions to operating income of $103.8m in Q2 and $219.3m in the first half, operating income and margins fell. The company cited reduced revenue from COVID-19, higher acquired-intangible amortization, higher interest expense, and merger integration costs.
- First-half operating cash flow was $960.3m, compared with $247.4m in 2019. Investing activities used $270.3m; financing activities used $510.1m. Cash and cash equivalents were $1,825.6m at June 30, of which $1,207.2m was considered available for general purposes.
- At June 30, total long-term debt was $9,273.6m, including $833.3m classified as current; cash was $1,825.6m. The $3.0bn revolving facility had no borrowings and $2.3bn of available commitments. Settlement lines had $439.5m outstanding, with $1,124.6m additional settlement capacity. The company reported compliance with debt covenants.
Changes, outlook, and risks
- COVID-19 significantly affected results beginning in mid-March, as consumer spending fell and some merchant customers closed. Management reported improving trends in May and June as restrictions eased and businesses reopened, but expected the pandemic to adversely affect revenue and earnings for the remainder of 2020. No quantified earnings or revenue guidance was provided.
- Management said it was operating normally and did not then anticipate significant operational effects from the pandemic. It also warned that the pandemic’s duration and severity, customer demand, and economic effects remained uncertain, and could contribute to asset-recoverability charges, credit losses, operational disruptions, fraud and cybersecurity exposure, or financing challenges.
- Cost actions included reductions in compensation and discretionary spending, reduced planned capital investment, and a temporary suspension of share repurchases. First-half capital expenditures were $208.4m. The company repurchased $404.0m of shares in the first half before suspending program activity; $880.0m of authorization remained. A $0.195-per-share dividend was declared in July.
- Merger-related acquisition and integration expenses were $82.2m in Q2 and $153.8m in the first half. Q2 and first-half cost of service included $314.0m and $628.3m of acquired-intangible amortization, respectively. Management expected additional integration charges during 2020; $37.7m of employee termination obligations remained accrued at quarter-end.
- The company issued $1.0bn of 2.900% senior notes due 2030 in May, using proceeds partly to repay revolving-credit borrowings and for general corporate purposes. Its June 30 goodwill impairment assessment concluded that no reporting unit was more likely than not to be impaired, but management noted that pandemic-related estimates could materially change.
- In a contract dispute, a jury awarded Frontline Processing $135.2m plus interest. Global Payments is appealing, considers the verdict erroneous, and stated that a loss was reasonably possible but not probable; it recorded no liability.
Investor verification priorities
- Separate TSYS acquisition effects from underlying and organic trends, particularly as year-over-year revenue and segment comparisons are not like-for-like.
- Track payment volumes, merchant reopening and spending trends, and the persistence of COVID-19 effects through the rest of 2020.
- Assess whether integration costs and acquired-intangible amortization decline as planned, and whether anticipated merger benefits are realized.
- Monitor debt maturities, interest expense, covenant headroom, and the distinction between reported cash and cash available for general purposes.
- Follow the Frontline appeal and any resulting change in the estimated litigation exposure, as well as credit-loss allowances and goodwill recoverability.