10-QPeriod: Q3 FY2016

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Aug 31, 2016

Filed October 5, 2016For Securities:GPN

Summary

GLOBAL PAYMENTS INC. (GPN) reported its financial results for the three months ended August 31, 2016. Total revenues increased by 25.5% year-over-year to $939.5 million, largely driven by the inclusion of Heartland Payment Systems, partially offset by currency headwinds. Despite revenue growth, consolidated operating income decreased by 12.1% to $121.1 million. This decline was primarily attributed to a significant increase in cost of service, up 69.7%, due to variable costs associated with revenue growth and higher intangible asset amortization related to recent acquisitions. Additionally, integration expenses for Heartland ($30.5 million) impacted profitability. Net income attributable to Global Payments was $85.1 million, a slight decrease from $86.6 million in the prior year period. Diluted earnings per share decreased to $0.55 from $0.66. A notable event during the quarter was the $41.2 million gain recorded from the sale of Global Payments' membership interests in Visa Europe. The company also continues to manage a substantial debt load, largely incurred to finance the Heartland acquisition, with total long-term debt (excluding current portion) at $4.29 billion. Despite the increased debt and integration costs, management believes its liquidity and borrowing capacity are sufficient for its near-term needs.

Financial Highlights

48 data points
Beta

Revenue

$951.88M

Net Income

$55.51M

5.8% Net Margin

EPS (Diluted)

$0.36

Total Assets

$10.24B

Cash & Equivalents

$1.01B

Free Cash Flow

$155.67M

Financial Statements
Beta
Revenue$951.88M
SG&A Expenses$361.52M
Operating Expenses$831.50M
Operating Income$120.39M
Interest Expense$44.60M
Net Income$55.51M
EPS (Basic)$0.36
EPS (Diluted)$0.36
Shares Outstanding (Basic)153.67M
Shares Outstanding (Diluted)154.53M

Key Highlights

  • 1Consolidated revenues grew 25.5% to $939.5 million, primarily due to the acquisition of Heartland.
  • 2Operating income declined 12.1% to $121.1 million, with operating margin shrinking from 18.4% to 12.9%.
  • 3Cost of service increased by 69.7%, significantly impacting profitability, driven by variable costs and higher amortization expenses.
  • 4Heartland integration expenses amounted to $30.5 million.
  • 5Net income attributable to Global Payments decreased slightly to $85.1 million, and diluted EPS fell to $0.55 from $0.66.
  • 6Recorded a $41.2 million gain on the sale of Visa Europe membership interests.
  • 7Total assets stood at $10.24 billion, with goodwill and other intangible assets representing a substantial portion ($7.06 billion).

Frequently Asked Questions

The primary driver of the 25.5% revenue increase to $939.5 million was the inclusion of Heartland Payment Systems, acquired in April 2016. This acquisition significantly boosted the North America segment's revenue.

Operating income and margins declined due to a substantial increase in the 'Cost of service' category (up 69.7%), driven by variable costs associated with higher revenue, increased amortization of intangible assets from recent acquisitions, and integration expenses related to Heartland. These increased costs outpaced the revenue growth.

The company's debt has increased significantly to fund the Heartland acquisition. Long-term debt (excluding current portion) was $4.29 billion as of August 31, 2016. This increase in debt led to higher interest expenses, which, along with integration costs, contributed to the lower operating income.

Global Payments recorded a gain of $41.2 million in 'Interest and other income' during the quarter from the sale of its membership interests in Visa Europe to Visa Inc.