10-QPeriod: Q3 FY2006

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Nov 30, 2006

Filed January 8, 2007For Securities:GPN

Summary

Global Payments Inc. (GPN) reported a solid performance for the quarter ended November 30, 2006, with a notable increase in both revenues and net income compared to the prior year. Total revenues grew by 19% year-over-year for the quarter and 17% for the six-month period, driven by strong performance in the merchant services segment, particularly in domestic direct, Canada, and the newly acquired Asia-Pacific operations. The money transfer segment also demonstrated robust growth. Net income saw a healthy increase of 11% for the quarter and 23% for the six months, leading to an improvement in diluted earnings per share. The company made significant strategic acquisitions during the period, most notably a controlling interest in HSBC's Asia-Pacific merchant acquiring business, which is expected to bolster its international presence. Despite some margin pressures in the merchant services and money transfer segments due to increased competition and integration costs, the overall financial health appears strong, supported by a new, larger revolving credit facility, ample cash reserves, and positive operational trends. Investors should note the ongoing integration of acquisitions and potential margin impacts as key areas to monitor.

Key Highlights

  • 1Total revenues increased by 19% to $260.7 million for the three months ended November 30, 2006, compared to $219.7 million in the prior year period.
  • 2Net income rose by 11% to $34.0 million for the three months ended November 30, 2006, compared to $30.6 million in the prior year period.
  • 3Diluted earnings per share increased to $0.42 for the three months ended November 30, 2006, from $0.37 in the prior year period.
  • 4Completed the acquisition of a 56% ownership interest in HSBC's Asia-Pacific merchant acquiring business for $68.6 million, expanding its international reach.
  • 5Merchant services segment revenue grew by 19% year-over-year for the quarter, driven by domestic direct, Canada, and Asia-Pacific operations.
  • 6Entered into a new five-year, $350 million unsecured revolving credit facility, enhancing financial flexibility.
  • 7Cash and cash equivalents stood at $249.2 million as of November 30, 2006, indicating a strong liquidity position.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the merchant services segment, particularly in the domestic direct and Canadian markets, as well as contributions from the newly acquired Asia-Pacific operations. The money transfer segment also showed significant growth.

The most significant initiative was the acquisition of a 56% stake in HSBC's Asia-Pacific merchant acquiring business. The company also acquired Diginet d.o.o. in Bosnia and Herzegovina and several money transfer branch locations in the United States, all aimed at expanding its market presence and service offerings.

The company entered into a new, larger five-year, $350 million unsecured revolving credit facility. This facility, along with existing cash reserves, provides significant financial flexibility for funding future strategic acquisitions, working capital needs, and general corporate purposes.

While overall net income increased, the company noted margin pressures in its merchant services and money transfer segments. These pressures are attributed to increased price competition, integration costs related to acquisitions (like the HSBC deal), and higher merchant operating loss reserves in some instances. Management expects some dilution to the merchant services operating margin in fiscal 2007 due to these factors.