10-QPeriod: Q1 FY2009

GLOBAL PAYMENTS INC Quarterly Report for Q1 Ended Feb 28, 2009

Filed April 6, 2009For Securities:GPN

Summary

GLOBAL PAYMENTS INC. (GPN) reported a net loss of $106.8 million, or $1.34 per diluted share, for the three months ended February 28, 2009. This contrasts sharply with the prior year's net income of $40.1 million, or $0.50 per diluted share. The significant decline is primarily attributable to a substantial impairment charge of $147.7 million related to goodwill and other assets in its Money Transfer segment, driven by challenging macroeconomic conditions. Despite the net loss, the company saw strong revenue growth of 26% to $392.7 million, largely fueled by the acquisition of HSBC Merchant Services LLP in the UK and continued expansion in its North America merchant services business. For the nine months ended February 28, 2009, Global Payments reported a net loss of $0.3 million, a stark turnaround from a net income of $121.9 million in the same period last year. Revenue for the nine-month period increased by 29% to $1.2 billion, also benefiting from the HSBC acquisition and organic growth. While the company's merchant services segments demonstrated resilience with operating income increases, the significant impairment charge overshadowed overall performance. Investors should focus on the underlying revenue trends and the impact of the impairment charge on profitability.

Key Highlights

  • 1Reported a net loss of $106.8 million for the three months ended February 28, 2009, compared to a net income of $40.1 million in the prior year period.
  • 2Recognized a significant impairment charge of $147.7 million in the Money Transfer segment, primarily impacting goodwill and other long-lived assets.
  • 3Achieved revenue growth of 26% to $392.7 million for the three months ended February 28, 2009, driven by the HSBC Merchant Services acquisition and North America segment performance.
  • 4Nine-month revenues grew 29% to $1.2 billion, also boosted by the HSBC acquisition.
  • 5Operating income in the International Merchant Services segment saw substantial growth (380% for the quarter), largely due to the HSBC acquisition.
  • 6The Money Transfer segment experienced revenue decline of 2% for the quarter, reflecting challenging macroeconomic conditions.
  • 7Cash flow from operations increased significantly by $84.9 million to $268.8 million for the nine months ended February 28, 2009.

Frequently Asked Questions

The primary driver of the significant net loss of $106.8 million was a non-cash impairment charge of $147.7 million related to goodwill and other long-lived assets in the company's Money Transfer segment. This charge was a result of a reassessment of future cash flows due to adverse macroeconomic conditions.

The acquisition of a 51% majority ownership interest in HSBC Merchant Services LLP on June 30, 2008, significantly contributed to the revenue growth in the International Merchant Services segment. For the three months ended February 28, 2009, revenues from this segment increased by 155%, with $50.0 million attributed to this acquisition. It also positively impacted the consolidated operating income for the nine-month period.

The company indicated that the outlook for its Money Transfer business has significantly declined due to difficult macroeconomic conditions, including the downturn in the construction market, immigrant labor trends, and overall decrease in economic growth in the United States and Spain. This led to the impairment charge and is expected to continue to negatively affect the segment.

Foreign currency exchange rate fluctuations had a notable negative impact on both revenue and earnings. For the three months ended February 28, 2009, currency rate fluctuations reduced revenues by $35.4 million and earnings by $0.10 per diluted share. For the nine months ended February 28, 2009, the impact was a reduction in revenues of $50.2 million and earnings by $0.14 per diluted share. The company does not use derivative instruments to hedge this risk.