10-QPeriod: Q3 FY2012

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Nov 30, 2012

Filed January 8, 2013For Securities:GPN

Summary

Global Payments Inc. (GPN) reported solid revenue growth for the three and six months ended November 30, 2012, with revenues increasing by 11% and 10%, respectively, year-over-year. This growth was primarily driven by performance in the U.S. and European markets. The company also highlighted the positive impact of the Durbin amendment, which capped debit interchange fees, leading to a decrease in interchange expenses and a corresponding increase in revenue. However, operating income for the six-month period saw a slight decrease due to the impact of the significant processing system intrusion incident that occurred in March 2012. This incident resulted in expenses and required remediation efforts, though the company has begun to resolve some network charges and expects potential insurance recoveries. Financially, GPN strengthened its balance sheet through strategic acquisitions, notably the purchase of Accelerated Payment Technologies (APT) for $413 million. This acquisition, funded by new debt, expands the company's direct distribution capabilities in the U.S. The company also secured significant new financing, including a $700 million term loan, to support its growth and acquisitions. Despite the costs associated with the security breach, the company maintained its commitment to shareholder returns, with an ongoing share repurchase program and consistent dividend payments, indicating a focus on both operational expansion and shareholder value.

Key Highlights

  • 1Revenue grew by 11% and 10% for the three and six months ended November 30, 2012, respectively, driven by strong performance in North America and Europe.
  • 2The Durbin amendment's cap on debit interchange fees positively impacted revenues by reducing interchange expenses.
  • 3A processing system intrusion incident in March 2012 incurred significant expenses, impacting six-month operating income, though some network charges were resolved and insurance recoveries are anticipated.
  • 4Acquisition of Accelerated Payment Technologies (APT) for $413 million expanded direct distribution capabilities in the U.S.
  • 5The company secured substantial new financing, including a $700 million term loan, to fund acquisitions and debt repayment.
  • 6Operating income for the North America segment decreased due to pricing compression in Canada and higher commission payments in the U.S. ISO channel.
  • 7International Merchant Services segment showed strong growth in operating income and margin, particularly in Europe.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the U.S. and European markets, as well as the positive impact of the Durbin amendment which reduced interchange expenses, thereby increasing net revenue.

The processing system intrusion incident led to significant expenses, including investigation, remediation, and estimated fraud losses, fines, and other charges. While the company reduced its estimate for some of these charges in the current quarter, the overall impact on operating income for the six-month period was negative, though revenue impact was reported as immaterial to date.

The company completed the acquisition of Accelerated Payment Technologies (APT) for $413 million to expand its U.S. distribution. It also secured new financing, including a $700 million term loan, to fund acquisitions and repay existing debt, and increased its corporate credit facility. Additionally, it completed the purchase of the remaining 44% of Global Payments Asia-Pacific Limited (GPAP).

The North America Merchant Services segment saw a decrease in operating income and margin due to pricing compression in Canada and increased commission payments. In contrast, the International Merchant Services segment demonstrated strong growth in both operating income and operating margin, particularly driven by European operations.