10-QPeriod: Q3 FY2016

GLOBAL PAYMENTS INC Quarterly Report for Q3 Ended Nov 30, 2016

Filed January 9, 2017For Securities:GPN

Summary

Global Payments Inc. (GPN) reported revenues of $941.8 million for the three months ended November 30, 2016, a significant increase of 30.4% compared to the prior year. This growth was primarily driven by the inclusion of Heartland, acquired in April 2016. Despite the revenue increase, operating income for the quarter decreased by 14.5% to $105.3 million, impacted by higher cost of service and integration expenses related to the Heartland acquisition. For the six-month period ended November 30, 2016, revenues grew 27.9% to $1.9 billion, also largely attributed to the Heartland merger. Operating income for this period declined by 13.2% to $226.4 million. Net income attributable to Global Payments also saw a decrease, with diluted EPS falling to $0.32 for the quarter and $0.87 for the six months, compared to $0.60 and $1.27 in the prior year, respectively. The company's balance sheet shows total assets of $10.1 billion and total liabilities of $7.3 billion as of November 30, 2016. The company refinanced its credit facilities in October 2016, which is expected to yield annual interest expense savings.

Key Highlights

  • 1Consolidated revenues increased by 30.4% to $941.8 million for the three months ended November 30, 2016, primarily due to the inclusion of Heartland.
  • 2Operating income decreased by 14.5% to $105.3 million for the three months ended November 30, 2016, impacted by higher cost of service and Heartland integration expenses.
  • 3Net income attributable to Global Payments decreased to $49.5 million for the three months ended November 30, 2016, down from $78.8 million in the prior year.
  • 4Diluted earnings per share for the three months ended November 30, 2016, was $0.32, a decrease from $0.60 in the comparable prior-year period.
  • 5Total assets stood at $10.1 billion as of November 30, 2016, with long-term debt totaling $4.3 billion (excluding current portion).
  • 6The company completed a refinancing of its credit facilities in October 2016, which is expected to result in annual interest expense savings of $10 million to $12 million.
  • 7A gain of $41.2 million was recorded from the sale of membership interests in Visa Europe during the six-month period.

Frequently Asked Questions

The substantial revenue growth of 30.4% for the three months and 27.9% for the six months ended November 30, 2016, was primarily driven by the merger with Heartland Payment Systems, Inc., completed on April 22, 2016. This acquisition significantly expanded the company's scale and market presence.

The decrease in operating income and net income, despite revenue growth, was mainly due to increased operating expenses. These included a higher cost of service, significant integration expenses related to the Heartland acquisition, and increased amortization of intangible assets from recent acquisitions. These factors more than offset the revenue gains.

As of November 30, 2016, Global Payments had approximately $4.3 billion in long-term debt (excluding the current portion) and $467.3 million outstanding under settlement lines of credit. The company recently refinanced its credit facilities in October 2016, which extended maturity dates and reduced interest rate margins, leading to expected annual interest expense savings.

The sale of Global Payments' membership interests in Visa Europe to Visa Inc. on June 21, 2016, resulted in a pre-tax gain of $41.2 million. This gain was recognized in 'Interest and other income' for the six months ended November 30, 2016, contributing positively to the 'Other income/Expense, Net' section.