10-QPeriod: Q3 FY2009

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Nov 30, 2009

Filed January 8, 2010For Securities:GPN

Summary

Global Payments Inc. (GPN) reported solid revenue growth of 12% and 11% for the three and six months ended November 30, 2009, respectively, driven primarily by its International merchant services segment, which saw a 15% and 22% increase in revenue for the respective periods. This international growth was significantly boosted by the acquisition of UCS in Russia and strong performance in the UK and Asia-Pacific. While the North America segment also grew, its operating margin saw a slight decline due to increased commission payments to Independent Sales Organizations (ISOs) and a shift towards smaller merchants. The company is strategically divesting its money transfer business, expecting proceeds of $85-110 million, and has completed the acquisition of Auctionpay, Inc. for $22.0 million to expand into new vertical markets. Financially, the company has increased its debt significantly, mainly to fund the acquisition of the remaining 49% of HSBC Merchant Services LLP for $307.7 million. This has led to higher interest expenses, increasing net other expenses. Despite these investments and acquisitions, Global Payments' net income attributable to shareholders and diluted EPS saw positive growth, indicating effective management of ongoing operations. The company maintains sufficient liquidity through cash reserves and credit facilities to meet its operational and future growth needs.

Key Highlights

  • 1Total revenues increased by 12% to $409.0 million for the three months ended November 30, 2009, and by 11% to $818.9 million for the six months ended November 30, 2009.
  • 2International merchant services segment revenue grew robustly by 15% (three months) and 22% (six months), driven by acquisitions (UCS in Russia) and strong performance in the UK and Asia-Pacific.
  • 3North America merchant services segment revenue increased by 10% (three months) and 8% (six months), with significant transaction growth in the US (19%), though average ticket size decreased.
  • 4The company is selling its money transfer business for an estimated $85 million to $110 million, classifying it as a discontinued operation.
  • 5Acquired Auctionpay, Inc. for $22.0 million to expand into new vertical markets with integrated payment processing solutions.
  • 6Total debt increased substantially from $207.2 million at May 31, 2009, to $460.9 million at November 30, 2009, largely due to funding the HSBC Merchant Services LLP acquisition.
  • 7Net income attributable to Global Payments increased to $62.8 million ($0.76 diluted EPS) for the three months and $120.7 million ($1.48 diluted EPS) for the six months ended November 30, 2009, compared to the prior year periods.

Frequently Asked Questions

Global Payments Inc. has entered into an agreement to sell its money transfer business to an affiliate of Palladium Equity Partners, LLC. The company expects to receive proceeds between $85 million and $110 million, depending on the business's operating performance at closing. This segment has been classified as a discontinued operation.

The acquisition of Auctionpay, Inc. for $22.0 million aims to expand the direct acquiring business into new vertical markets. The acquisition of UCS in the Russian Federation contributed significantly to the growth in the International merchant services segment, alongside strong performance in the UK and Asia-Pacific. The purchase of the remaining 49% of HSBC Merchant Services LLP for $307.7 million was a major driver of increased debt but also consolidated international operations.

Revenue in the North America segment grew due to an increase in processed transactions, particularly in the US (19% growth). However, the average ticket size decreased by approximately 9-10% due to macroeconomic conditions, a shift towards debit transactions, and the addition of smaller merchants through the ISO channel. This channel, while driving growth, has a dilutive effect on operating margins due to ongoing commission payments to ISOs.

The company's total debt has significantly increased, primarily due to borrowings to fund the acquisition of the remaining interest in HSBC Merchant Services LLP. Despite this increase in debt and consequently higher interest expenses, Global Payments believes its current cash reserves, available credit facilities, and anticipated operating cash flows are sufficient to meet its ongoing operational needs and future growth plans. The company has a clear cash flow strategy that includes capital investments, acquisitions, debt repayment, and shareholder returns.