Global Payments Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Global Payments is a global payments technology company with Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions segments. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless otherwise noted.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2,280.9 | $2,137.4 | $4,437.2 | $4,127.4 |
| Operating income (loss) | $(529.9) | $362.6 | $(153.9) | $637.8 |
| Net income (loss) attributable to Global Payments | $(673.0) | $263.6 | $(428.3) | $460.3 |
| Diluted EPS | $(2.42) | $0.89 | $(1.53) | $1.55 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $1,198.1 | $1,109.6 |
Revenue increased 6.7% in Q2 and 7.5% in the first half. Management attributed growth primarily to higher transaction volumes, customer-base growth, increased digital payments, and continued economic recovery, partly offset by unfavorable currency movements and lower Business and Consumer Solutions spending.
GAAP operating results were materially affected by an $833.1 million goodwill impairment and $152.2 million of business-disposition losses in 2022; neither item occurred in the comparable 2021 periods. The disposition loss included a $127.2 million loss on the sale of the Russia merchant business and a $25 million charge related to the consumer-business sale. Income tax expense was recorded despite pretax losses, principally because no tax benefit was recognized on the impairment or Russia sale loss.
Segment results showed contrasting trends. Q2 Merchant Solutions revenue rose 10.9% and operating income rose 22.4%; operating margin increased to 33.8% from 30.6%. Issuer Solutions revenue rose 5.6%, but operating income fell 9.5% and margin declined to 12.7% from 14.8%. Business and Consumer Solutions revenue declined 17.5%, operating income fell 25.0%, and margin declined to 16.9% from 18.6%. The first-half segment trends were broadly similar: Merchant Solutions revenue increased 13.4% and margin rose to 32.1%; Issuer Solutions revenue increased 4.0% but margin declined to 12.0%; Business and Consumer Solutions revenue fell 18.6% and margin declined to 17.1%.
Cash flow, debt, and liquidity
- First-half operating cash flow was $1,198.1 million, up from $1,109.6 million. Investing activities used $363.7 million, including $324.0 million of capital expenditures; financing activities used $742.7 million.
- Cash and cash equivalents were $1,933.3 million at June 30, 2022, compared with $1,979.3 million at year-end 2021. Management identified $700.8 million as available for general purposes; restricted cash was $165.8 million.
- Total long-term debt carrying amount was $12,163.5 million, including $1,279.7 million classified as current. The company had $700 million drawn on its revolving credit facility and $1.7 billion of remaining commitments available. Settlement-line borrowings were $469.5 million, with additional settlement capacity of $1.8 billion.
- The company reported compliance with its debt covenants at quarter-end. It stated that cash, revolving-credit capacity, and expected operating cash flows should meet existing near- and long-term needs.
- First-half share repurchases totaled $1.25 billion and dividends paid totaled $139.3 million. The board subsequently increased the share-repurchase authorization to $1.5 billion.
Material changes, outlook, and unusual items
- Consumer-business sale: The business was classified as held for sale at June 30. On July 31, Global Payments agreed to sell it for $1 billion, with up to $675 million of seller financing and $80 million of future services. Closing was expected before the end of Q1 2023, subject to customary conditions. The company recorded the impairment and sale-related charges noted above.
- Russia exit: The Merchant Solutions business in Russia was sold effective April 29 for $9 million cash proceeds. Management described the business as an immaterial portion of operations before the sale.
- EVO Payments acquisition: On August 1, the company agreed to acquire EVO for $34 per share, approximately $3.4 billion of estimated cash consideration and approximately $4 billion enterprise value. Closing was expected before the end of Q1 2023, subject to regulatory and shareholder approvals. Global Payments obtained commitments for a $4.3 billion, 364-day bridge facility and said it expected permanent financing to replace it.
- Convertible notes: Also on August 1, the company entered an agreement for $1.5 billion of 1.0% convertible senior notes due 2029, convertible at the holder’s option after 18 months at a 15% conversion premium. Planned hedge and warrant transactions were intended to offset dilution.
- Operating outlook: Management expected 2022 capital expenditures to remain a similar percentage of revenue as in 2021. The provided filing text does not give a clear specific full-year revenue or EPS forecast.
- Key risks: Management highlighted uncertainty from COVID-19, the Russia-Ukraine conflict, inflation, rising interest rates, foreign-exchange volatility, reduced spending, cyber and operational disruptions, and execution, financing, approval, and integration risks for the EVO acquisition. Further goodwill impairment is possible if assumptions or economic conditions worsen. The Issuer Solutions reporting unit’s estimated fair value exceeded carrying value by approximately 4%, leaving relatively limited disclosed headroom.
Important facts for investors to verify
- Whether the consumer-business sale closes on the stated terms and how seller financing and transition services affect cash proceeds and results.
- Whether EVO receives required approvals, closes on schedule, and is financed without materially increasing interest expense or leverage.
- Whether transaction growth and Merchant Solutions margin gains continue, and whether Issuer Solutions and Business and Consumer Solutions stabilize.
- Whether goodwill valuations, particularly the Issuer Solutions valuation with approximately 4% headroom, withstand changes in share price, discount rates, and forecasts.
- How debt maturities, rising borrowing costs, share repurchases, and capital expenditures affect liquidity and capital allocation.