GPN

Global Payments Inc. 10-Q Summary

Business Context and Reporting Period

Company: Global Payments Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: November 30, 2009
Business Overview: Global Payments is a high-volume processor of electronic transactions for merchants, financial institutions, and consumers. The company operates primarily through two segments: North America Merchant Services and International Merchant Services. The Money Transfer segment has been classified as discontinued operations following an agreement to sell the business.

Key Financial Metrics

All figures in thousands, except per share data.

Liquidity Note: Of the $1.09 billion in cash and cash equivalents, approximately $147.8 million is considered "available cash." The remainder consists of settlement-related balances and merchant reserves, which are generally paid out the following business day or held as collateral.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 12% ($43.1 million) for the three months and 11% ($84.0 million) for the six months ended November 30, 2009, compared to the prior year. Growth was driven by the International Merchant Services segment (+15% Q/Q, +22% Y/Y) and North America Merchant Services (+10% Q/Q, +8% Y/Y).
• Profitability: Operating income increased 14% for the quarter and 7% for the six-month period. Net income attributable to Global Payments rose 28% for the quarter and 13% for the six months.
• Discontinued Operations: The Money Transfer segment is now reported as discontinued. The company recorded an estimated loss on disposal of $15.9 million for the six months ended November 30, 2009, partially offset by an income tax benefit of $18.8 million.
• Debt Levels: Total debt increased significantly from $207.2 million (May 31, 2009) to $460.9 million (November 30, 2009). This increase was primarily due to a new $300 million term loan entered into in July 2009 to refinance credit facilities used for the acquisition of the remaining interest in HSBC Merchant Services LLP.
• Currency Impact: Foreign currency exchange rate fluctuations reduced revenues by $15.8 million and diluted earnings per share by $0.04 for the six-month period.

Guidance, Outlook, and Risks

• Strategic Transactions:
  • Money Transfer Sale: Signed an agreement to sell the money transfer business to an affiliate of Palladium Equity Partners for proceeds between $85 million and $110 million. Closing is expected by the end of fiscal year 2010.
  • Acquisitions: Completed the acquisition of Auctionpay, Inc. ($22 million) to expand into fundraising payment processing. Completed the purchase of the remaining 49% interest in HSBC Merchant Services LLP ($307.7 million).
• Outlook: Management expects to continue growing revenue in direct merchant acquiring markets. However, macroeconomic conditions have caused average transaction ticket sizes to decline. The company plans to leverage economies of scale and pursue further acquisitions.
• Risks and Contingencies:
  • Foreign Exchange: Significant operations in non-U.S. currencies expose the company to exchange rate fluctuations.
  • Merchant Risk: The company maintains reserves for operating losses (chargebacks, fraud) and check guarantee losses. Actual losses could differ from estimates.
  • Redeemable Noncontrolling Interests: The company has a redeemable noncontrolling interest in its Asia-Pacific business (GPAP) with a maximum redemption value estimated at $96.6 million as of November 30, 2009.

Key Facts for Investor Verification

• Settlement Timing: The unusually high cash balance ($1.09 billion) and settlement processing obligations ($732 million) are largely due to the timing of month-end cut-offs. These funds are typically settled the following business day and do not represent permanent liquidity.
• Debt Structure: Verify the terms of the new $300 million term loan (maturing 2012) and the impact of increased interest expense on future margins.
• Discontinued Operations: Confirm the final sale price and closing date of the Money Transfer business, as the current financials include an estimated loss on disposal.
• Acquisition Integration: Monitor the integration of HSBC Merchant Services LLP and ZAO United Card Service (UCS), which contributed significantly to International segment growth.
• Share Repurchase: The company has $13.0 million remaining under its $100 million share repurchase authorization but did not repurchase shares during the first six months of fiscal 2010.