10-QPeriod: Q3 FY2004

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Aug 31, 2004

Filed October 4, 2004For Securities:GPN

Summary

Global Payments Inc. (GPN) reported a strong third quarter for fiscal year 2004, with significant revenue and net income growth. Revenue increased by 41% year-over-year to $192.6 million, driven by acquisitions and robust performance in both merchant services and money transfer segments. The company's operating income saw a substantial increase of 53% to $41.6 million, leading to a higher operating margin. This growth translated into a 53% surge in net income to $24.2 million, with diluted earnings per share rising to $0.62 from $0.41 in the prior year period. The company's liquidity remains adequate, supported by operating cash flows and existing credit facilities. While investing activities showed increased use of cash, largely due to acquisitions, management believes current resources and borrowing capacity are sufficient for future operations and planned requirements. Management is focused on continued growth through domestic and international expansion, strategic acquisitions, and enhancing customer offerings.

Key Highlights

  • 1Revenue grew 41% year-over-year to $192.6 million, driven by acquisitions (DolEx, MUZO) and strong domestic direct merchant services growth.
  • 2Net income increased by 53% to $24.2 million, with diluted earnings per share rising to $0.62 from $0.41 in the prior year.
  • 3Operating income grew 53% to $41.6 million, improving the operating margin to 21.6% from 19.9%.
  • 4The Money Transfer segment experienced explosive growth (786%) due to the DolEx acquisition, contributing significantly to overall revenue.
  • 5Acquisitions, including Comerica Bank's interest in Cash & Win for $7.8 million, were a key driver of expansion and revenue growth.
  • 6Despite increased capital expenditures related to systems consolidation and facility expansion, the company maintains a positive outlook on liquidity, supported by operational cash flows and credit facilities.
  • 7Cost of service as a percentage of revenue decreased to 42% due to economies of scale and cost reduction initiatives.

Frequently Asked Questions

The primary drivers of revenue growth were strategic acquisitions, notably DolEx in November 2003 and MUZO which was substantially completed in May 2004. Additionally, strong performance in the domestic direct merchant services offering and substantial growth in the money transfer segment, largely attributed to the DolEx acquisition, significantly contributed to the 41% revenue increase.

Profitability improved significantly. Net income rose by 53% to $24.2 million, and diluted earnings per share increased to $0.62 from $0.41 in the same period last year. This was driven by revenue growth, improved operating margins due to economies of scale and cost containment, and the positive impact of acquisitions.

Management believes its current cash and cash equivalents, combined with its borrowing capacity under committed lines of credit, are sufficient to meet its operational needs and planned requirements. Net cash provided by operating activities remains a significant source of liquidity, although it decreased compared to the prior year due to timing differences in receivables. Investing activities saw increased use of cash primarily due to acquisitions and capital expenditures for systems consolidation.

Acquisitions have been a major catalyst for growth. The DolEx acquisition significantly boosted the Money Transfer segment, showing 786% revenue growth. The acquisition of Comerica Bank's interest in Cash & Win for $7.8 million also contributed to revenue and strategic positioning. While acquisitions increase expenses like SG&A (due to commissions) and goodwill, management believes they are accretive to earnings and align with growth strategies.