Global Payments Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2015, the company’s first quarter of fiscal 2016 (unaudited). The filing metadata’s “2015 Q1” label does not match the quarter covered. Global Payments provides payment technology and services in 29 countries and reports North America, Europe, and Asia-Pacific segments.
Financial performance
| Metric | Quarter ended Aug. 31, 2015 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $748.8 million | $704.9 million | +6.2% |
| Operating income | $137.8 million | $124.4 million | +10.8% |
| Operating margin | 18.4% | 17.6% | +0.8 percentage points |
| Net income attributable to Global Payments | $86.6 million | $75.4 million | +15.0% |
| Diluted EPS | $1.32 | $1.10 | +$0.22 |
| Operating cash flow | $513.4 million | $(63.5) million | Improved by $576.9 million |
Net income was $93.0 million, including $6.4 million attributable to noncontrolling interests. Cost of service was 36.4% of revenue versus 36.9%; SG&A was 45.2% versus 45.5%. Interest and other expense increased to $12.1 million from $9.8 million; the effective tax rate was 26.0% versus 26.3%.
- Segment revenue: North America $530.9 million (+5.3%); Europe $168.4 million (+3.4%); Asia-Pacific $49.6 million (+30.1%). Segment operating income increased 7.2%, 8.5%, and 86.6%, respectively.
- Cash and liquidity: Cash and equivalents were $803.3 million at August 31, 2015, of which $200.1 million was identified as available cash after excluding settlement-related and merchant-reserve balances. Settlement-related balances fluctuate with processing timing; $167.8 million of cash related to merchant reserves.
- Debt: Long-term debt was $1.932 billion, including a $1.745 billion term loan and $187 million drawn on the revolving facility. Settlement-purpose short-term lines of credit totaled $356.7 million, with $859.5 million of additional capacity. The company reported $417.3 million of available incremental borrowing under its corporate revolver.
- Cash uses and obligations: Investing activities used $258.4 million, including $241.1 million for acquisitions; capital expenditures were $16.9 million. Financing activities used $90.1 million, including $34.3 million for share repurchases. Fiscal 2016 capital expenditures were expected to be approximately $105 million.
Material changes and notable items
- Operating cash flow improved sharply, primarily because settlement processing assets and obligations contributed a $402.7 million cash inflow, compared with a $179.5 million outflow a year earlier. Management said these balances are significantly affected by month-end timing.
- Revenue growth reflected activity across the markets, but was partly offset by $46.7 million of unfavorable currency effects. Foreign-currency translation contributed a net-of-tax comprehensive loss of $24.8 million.
- On July 31, 2015, the company refinanced its debt into a five-year, $1.75 billion term loan and a $1.25 billion revolving facility, with borrowing capacity expandable by up to $500 million subject to conditions. At quarter-end, stated rates were 1.70% on the term loan and 1.65% on the revolver. Interest expense rose, partly due to higher average borrowings and swap settlements; refinancing also resulted in a $0.5 million write-off of prior debt issuance costs.
- The company acquired the FIS gaming business for $237.5 million on June 1 and completed a Philippines merchant-acquiring transaction with BPI on August 3, retaining a 51% controlling interest. A Central and Eastern Europe venture requiring a €30 million cash payment was expected to close in the second half of fiscal 2016, subject to approvals and customary conditions.
- The board declared a two-for-one stock split after quarter-end, payable November 2, 2015 to shareholders of record October 21. The reported financial statements and EPS do not reflect the split.
Outlook, risks, and contingencies
Management said cash, borrowing capacity, and expected operating cash flows should be sufficient for existing operations and planned requirements for the foreseeable future. It also intended to use remaining refinancing proceeds for strategic capital allocation, including acquisitions and ongoing share repurchases. No specific revenue or earnings guidance was provided.
Key disclosed risks include data security and system availability, competition, product updates and software defects, dependence on financial institutions and card-network compliance, merchant and partner attrition, chargebacks and network fees, foreign-currency and interest-rate exposure, international political or regulatory changes, and integration and performance of acquired businesses. A hypothetical 100-basis-point increase in applicable interest rates was estimated to raise annual interest expense by approximately $17.1 million, after considering swaps. The company reported compliance with debt covenants; no legal proceedings were reported. Contractual obligations totaled $2.798 billion, including long-term debt, interest, short-term lines, leases, and purchase obligations.
Important facts for investors to verify
- How much of operating cash flow reflects temporary settlement timing rather than recurring cash generation.
- The contribution of acquisitions, foreign exchange, and underlying transaction growth to segment results and margins.
- Debt levels, available revolver capacity, covenant headroom, and sensitivity to interest rates and currency movements.
- Integration results and purchase-accounting estimates for recent acquisitions, and the timing and approvals for the planned Central and Eastern Europe venture.
- Whether expected fiscal 2016 capital expenditures and management’s liquidity expectations remain consistent with subsequent results.