10-QPeriod: Q1 FY2010

GLOBAL PAYMENTS INC Quarterly Report for Q1 Ended Feb 28, 2010

Filed April 1, 2010For Securities:GPN

Summary

Global Payments Inc. (GPN) reported solid revenue growth in the third quarter and first nine months of fiscal year 2010, with total revenues increasing by 11% year-over-year for both periods. This growth was primarily driven by a strong performance in the International Merchant Services segment, which saw a 24% revenue increase in the third quarter. The North America segment also posted growth, albeit at a more moderate pace of 7% for the quarter, supported by a 14% transaction volume increase in the U.S. direct merchant acquiring business. The company is actively managing its portfolio, having signed an agreement to sell its money transfer business and completing the acquisition of Auctionpay, Inc. to bolster its direct acquiring capabilities in specific verticals. Despite overall revenue growth, the company noted a decline in average ticket size across its geographic regions, attributed to macroeconomic conditions, a shift towards debit transactions, and the onboarding of smaller merchants. Operating expenses, particularly the cost of service, increased as a percentage of revenue, impacting margins in some segments. The company's liquidity position remains strong, with substantial cash and cash equivalents, and it believes it has sufficient resources to meet its operational and planned requirements. Significant debt was taken on to finance acquisitions, particularly the increased stake in HSBC Merchant Services LLP, but the company is compliant with its debt covenants.

Financial Highlights

24 data points
Beta

Net Income

$48.46M

EPS (Diluted)

$0.29

Cash & Equivalents

$589.62M

Free Cash Flow

$281.68M

Financial Statements
Beta
SG&A Expenses$178.48M
Operating Expenses$324.69M
Operating Income$73.85M
Net Income$48.46M
EPS (Basic)$0.30
EPS (Diluted)$0.29

Key Highlights

  • 1Total revenues increased by 11% to $398.5 million for the three months ended February 28, 2010, and by 11% to $1,217.4 million for the nine months ended February 28, 2010, compared to the prior year periods.
  • 2International Merchant Services segment revenue grew significantly, up 24% for the quarter and 22% for the nine-month period, driven by acquisitions (UCS in Russia) and strong performance in the UK and Asia-Pacific.
  • 3North America Merchant Services segment revenue increased by 7% for the quarter and 8% for the nine-month period, with U.S. direct credit/debit transactions up 14% and 17% respectively, though average ticket size declined.
  • 4The company signed an agreement to sell its money transfer business for $85-110 million, expected to close before the end of fiscal year 2010.
  • 5Acquisition of Auctionpay, Inc. for $22.0 million completed in September 2009 to expand into the fundraising vertical.
  • 6Completed the purchase of the remaining 49% of HSBC Merchant Services LLP for $307.7 million in June 2009, leading to increased debt.
  • 7Consolidated operating income increased by 18% to $73.8 million for the quarter and by 10% to $251.8 million for the nine months, largely due to the International segment's performance.

Frequently Asked Questions

Revenue growth is primarily driven by the International Merchant Services segment, fueled by recent acquisitions like UCS in Russia and solid performance in the UK and Asia-Pacific. The North America segment also contributes through increasing transaction volumes in the U.S. direct merchant acquiring business, despite a decrease in average ticket size.

Global Payments has signed an agreement to sell its wholly-owned money transfer business, expecting to receive between $85 million and $110 million. This divestiture is part of a portfolio management strategy and is expected to close before the end of fiscal year 2010.

The company increased its debt to finance acquisitions, notably the purchase of the remaining stake in HSBC Merchant Services LLP. Despite higher debt levels, Global Payments maintains a strong liquidity position with substantial cash and cash equivalents, and believes its available cash and borrowing capacity are sufficient for current and future needs. They are compliant with debt covenants.

The average ticket size has declined due to a combination of factors including challenging macroeconomic conditions leading to lower consumer spending, an industry-wide shift towards more debit card transactions (which tend to have lower average ticket values than credit cards), and the acquisition of smaller merchants through channels like ISOs, which typically have lower average transaction values.