10-QPeriod: Q3 FY2007

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Nov 30, 2007

Filed January 8, 2008For Securities:GPN

Summary

Global Payments Inc. (GPN) reported strong revenue growth in its third quarter and first half of fiscal year 2008, driven primarily by its Merchant Services segment, particularly domestic direct, Canada, and Asia-Pacific channels. Total revenues increased by 18% for the quarter and 19% for the six-month period ended November 30, 2007, year-over-year. While consolidated operating income and net income also saw increases, the company experienced a significant decline in operating income for its Money Transfer segment due to increased price competition and strategic pricing adjustments. Despite margin pressures in Money Transfer, the company maintained a focus on strategic growth, evidenced by investments in its Asia-Pacific channel and a $100 million share repurchase program. Management anticipates continued revenue growth in fiscal 2008, projecting between 16% to 18% for consolidated revenues. Investors should note the contrasting performance between the robust Merchant Services segment and the challenged Money Transfer segment, as well as the ongoing impact of foreign currency exchange rates and integration efforts in the Asia-Pacific region.

Key Highlights

  • 1Total revenues increased by 18% to $308.8 million for the three months ended November 30, 2007, and by 19% to $619.8 million for the six months ended November 30, 2007.
  • 2Merchant services segment revenue grew by 21% for both the three-month and six-month periods, driven by strong performance in domestic direct, Canada, and Asia-Pacific channels.
  • 3Money transfer segment revenue saw a modest increase of 1% for the quarter and 4% for the six months, but operating income decreased significantly by 70% and 43%, respectively.
  • 4Consolidated operating income increased by 12% for the quarter and 8% for the six months, though operating margins declined year-over-year.
  • 5Net income increased by 13% for the quarter and 8% for the six months, resulting in diluted EPS of $0.48 and $1.01, respectively.
  • 6The company repurchased approximately $87.0 million of its common stock under a $100 million share repurchase program during the six months ended November 30, 2007.
  • 7Management projects fiscal 2008 consolidated revenues to range between $1,231 million and $1,257 million, representing growth of 16% to 18%.

Frequently Asked Questions

Revenue growth is primarily driven by the Merchant Services segment, specifically the domestic direct, Canada, and Asia-Pacific channels. These segments experienced strong increases in processed transactions and revenue.

The Money Transfer segment is facing increased price competition and a competitive pricing environment, leading to lower pricing and a decline in operating income. Management attributes this partly to potential shifts in immigration patterns and economic conditions.

The company generated significant cash flow from operations, increased its cash and cash equivalents to $363.4 million, and has a $350 million unsecured revolving credit facility. They also repurchased $87.0 million of stock under a $100 million authorization, indicating a focus on returning capital to shareholders and maintaining operational flexibility.

Management expects fiscal 2008 consolidated revenues to grow between 16% and 18%. They anticipate continued strength in Merchant Services, although operating margins in this segment may be impacted by specific revenue recognition events and check guarantee service performance. The Money Transfer segment is expected to see mid to high single-digit revenue growth but maintain a lower operating margin.