10-QPeriod: Q3 FY2008

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Aug 31, 2008

Filed October 8, 2008For Securities:GPN

Summary

Global Payments Inc. (GPN) reported strong financial performance for the third quarter ended August 31, 2008, with significant revenue and net income growth driven by both organic expansion and strategic acquisitions. Total revenues surged by 30% year-over-year to $405.8 million, bolstered by robust performance in the North America merchant services segment and the substantial contribution from the recently acquired 51% stake in HSBC Merchant Services LLP in the United Kingdom. Profitability also saw a marked increase, with consolidated operating income rising 41% to $93.1 million and net income climbing 32% to $57.5 million. This translated to a 34% increase in diluted earnings per share to $0.71. The company's international segment, particularly Europe, exhibited exceptional growth following the HSBC acquisition, while the North America segment continued its steady expansion. The money transfer segment showed modest growth, though it faced headwinds from economic downturns in the US and Spain. GPN also provided an optimistic outlook for fiscal year 2009, projecting revenue growth between 29% and 32%.

Key Highlights

  • 1Total revenues increased by 30% to $405.8 million, driven by North America merchant services growth and the HSBC Merchant Services LLP acquisition.
  • 2Consolidated operating income grew 41% to $93.1 million, with an improved operating margin of 22.9%.
  • 3Net income rose 32% to $57.5 million, resulting in a 34% increase in diluted EPS to $0.71.
  • 4The International Merchant Services segment saw a dramatic 176% revenue increase to $82.3 million, largely due to the HSBC UK acquisition, with operating income up 297%.
  • 5North America Merchant Services segment revenue increased by 16% to $286.6 million, demonstrating continued organic growth.
  • 6The company completed a $200 million, five-year term loan to partially fund the HSBC UK acquisition and has substantial liquidity from its U.S. Credit Facility for future strategic initiatives.
  • 7Global Payments Inc. anticipates fiscal year 2009 consolidated revenues to range between $1,640 million and $1,680 million, representing 29% to 32% growth.

Frequently Asked Questions

The primary driver was a combination of solid organic growth in the North America merchant services segment and the significant contribution from the acquisition of a 51% majority ownership in HSBC Merchant Services LLP in the United Kingdom, which closed on June 30, 2008.

The acquisition substantially boosted the International Merchant Services segment, driving its revenue up by 176% and operating income by 297%. It also contributed to a favorable foreign currency impact and led to an increase in minority interest, net of tax, and a decrease in the effective tax rate due to the UK's lower statutory income tax rate.

Global Payments Inc. maintains strong liquidity through cash generated from operations, with $287.7 million in cash and cash equivalents as of August 31, 2008. The company also has a $350 million U.S. Credit Facility available for strategic acquisitions and working capital. They funded the HSBC acquisition with a $200 million term loan and excess cash, and they regularly evaluate future funding needs through debt, equity, or other means to support growth strategies, including acquisitions.

Yes, the Money Transfer segment in the United States and Europe has been negatively affected by the downturn in the housing market and decreased economic growth, leading to a decrease in domestic money transfer transactions and branch closures. Additionally, the company noted a decrease in the average dollar value of transactions in the North America merchant services segment, partially attributed to weaker consumer spending and a shift towards smaller merchants.