Global Payments Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited GAAP results; amounts below are in U.S. dollars. Global Payments provides payment technology and services through Merchant Solutions, Issuer Solutions and Consumer Solutions.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $2,292.4 million | $2,156.3 million | Up 6.3% |
| Operating income | $56.7 million | $375.9 million | Down 84.9% |
| Operating margin | 2.5% | 17.4% | Down 14.9 percentage points |
| Net income attributable to Global Payments | Loss of $11.0 million | Income of $244.7 million | Turned to a loss |
| Diluted earnings per share | Loss of $0.04 | Earnings of $0.87 | Turned to a loss |
| Operating cash flow | $599.5 million | $630.0 million | Down $30.5 million |
Revenue growth reflected higher transaction volumes and digital payment use, partly offset by unfavorable foreign exchange. Merchant Solutions revenue rose 9.0% to $1,605.6 million; Issuer Solutions rose 6.2% to $570.9 million; Consumer Solutions fell 15.0% to $143.7 million, which management attributed to reduced consumer spending and lower volumes. Merchant and Issuer operating margins improved year over year, to 31.6% and 14.5%, respectively; Consumer Solutions had a 4.0% operating loss margin.
Cost of service was $947.8 million, or 41.3% of revenue, versus 44.4% a year earlier. SG&A rose 26.7% to $1,043.1 million, including higher acquisition and integration costs, compensation and share-based compensation, and consumer-business sale costs. Interest and other expense was $122.9 million, up from $93.3 million; interest expense alone was $119.0 million, up from $89.3 million.
Cash, debt and liquidity
At March 31, 2023, cash and cash equivalents were $2,001.7 million; management identified $696.2 million as available for general purposes. Restricted cash was $147.3 million. Total debt was $17,719.4 million, including $1,185.4 million current and $16,534.1 million long term; debt was $13,458.6 million at December 31, 2022. The increase largely accompanied EVO’s acquisition and related financing.
The company reported $2.4 billion of available commitments under its $5.75 billion revolving credit facility and $1,048.6 million of commercial paper outstanding at a 5.87% weighted-average annual rate. Operating cash flow was $599.5 million; investing activities used $4,206.8 million, including $4,046.8 million for acquisitions and $162.2 million of capital expenditures. Financing activities provided $3,610.8 million. The company said it was in compliance with debt covenants and believes projected liquidity is sufficient for near- and long-term needs.
Material changes, outlook and risks
- EVO acquisition: Completed March 24 for total consideration of $4.27 billion. The acquisition added $3.52 billion of provisional goodwill; acquired revenue and earnings through March 31 were not material. Purchase accounting remained provisional. The acquisition was funded with cash and revolving-credit borrowings.
- Divestitures: The Netspend consumer business was classified as held for sale, and a $244.8 million loss was recorded in Q1 to reduce its carrying value. Its sale closed April 26 for approximately $1 billion, subject to final adjustments, with $675 million of seller financing. The gaming-business sale closed April 1 for approximately $400 million, including a $32 million seller-financed note; management expected a gain of approximately $100 million in Q2.
- Financing and capital allocation: The company issued €800 million of 4.875% notes due 2031 and established a $2.0 billion commercial-paper program. It repurchased $206.6 million of shares and paid $65.8 million of dividends in Q1. The board declared another $0.25-per-share dividend for payment June 30, 2023.
- Outlook: No specific revenue or earnings guidance is provided in the supplied filing text. Management anticipated 2023 capital expenditures would grow at a similar rate to revenue growth and stated that it expects significant ongoing investment in technology and infrastructure.
- Risks and contingencies: Management cited currency movements, inflation, higher interest rates, economic conditions, acquisition integration, cybersecurity and operational failures, competition, debt and payment-network requirements. Foreign exchange reduced Q1 revenue by approximately $30.4 million and operating income by $10.7 million. The company reported no losses from recent bank failures, but noted that substantial cash balances at financial institutions above insured limits and dependence on sponsor banks for merchant settlement could expose it to disruption. Routine legal claims were not expected to have a material adverse effect.
- Management and controls: The filing notes that the CEO’s departure was announced May 1, 2023. Management concluded disclosure controls were effective at March 31; EVO was to be incorporated into the internal-control program within the applicable regulatory period.
Important facts for investors to verify
- How EVO integration, provisional purchase accounting and acquisition-related costs affect subsequent operating results and debt levels.
- Final proceeds, closing adjustments and realized gains or losses from the consumer and gaming divestitures, including performance and collectability of seller-financed loans.
- Debt refinancing and interest costs, covenant headroom, and the company’s ability to manage commercial paper maturities and borrowing needs.
- Whether organic segment growth and margin trends persist after separating acquisition, divestiture, foreign-exchange and unusual-item effects.
- The financial and operational implications of the announced CEO departure and any related changes in strategy or guidance.