10-QPeriod: Q2 FY2017

GLOBAL PAYMENTS INC Quarterly Report for Q2 Ended Jun 30, 2017

Filed August 3, 2017For Securities:GPN

Summary

GLOBAL PAYMENTS INC. (GPN) reported a solid performance for the second quarter and first half of 2017, demonstrating revenue growth across all segments. For the three months ended June 30, 2017, total revenues increased by 14.2% to $962.2 million, and for the six months ended June 30, 2017, revenues grew by 28.1% to $1.88 billion. This growth was primarily driven by the merger with Heartland, although unfavorably impacted by currency fluctuations. Operating income showed significant improvement, rising to $131.9 million for the quarter and $236.8 million for the half-year, with operating margins expanding to 13.7% and 12.6% respectively. While net income attributable to Global Payments saw a modest increase to $66.9 million for the quarter, it slightly decreased to $115.7 million for the half-year compared to the prior year. This was largely due to the absence of a significant one-time gain from the Visa Europe sale recognized in the prior year. Notably, the company announced a significant acquisition of ACTIVE Network for $1.2 billion, which is expected to close in the fourth quarter of 2017, to be funded by cash and stock.

Financial Highlights

51 data points
Beta

Revenue

$962.24M

51.2% Gross Margin

Net Income

$66.91M

7.0% Net Margin

EPS (Diluted)

$0.44

Total Assets

$10.04B

Cash & Equivalents

$1.08B

Free Cash Flow

-$25.90M

Financial Statements
Beta
Revenue$962.24M
Cost of Revenue$469.15M
Gross Profit$493.09M
SG&A Expenses$361.24M
Operating Expenses$830.39M
Operating Income$131.85M
Interest Expense$47.40M
Net Income$66.91M
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)152.53M
Shares Outstanding (Diluted)153.56M

Key Highlights

  • 1Total revenues for Q2 2017 increased by 14.2% to $962.2 million, and for H1 2017 increased by 28.1% to $1.88 billion, largely driven by the Heartland merger.
  • 2Operating income saw a substantial increase, growing to $131.9 million in Q2 and $236.8 million in H1 2017, with operating margins improving to 13.7% and 12.6% respectively.
  • 3Net income attributable to Global Payments for Q2 2017 was $66.9 million ($0.44 EPS), a slight increase from $62.2 million ($0.42 EPS) in Q2 2016.
  • 4Net income attributable to Global Payments for H1 2017 was $115.7 million ($0.75 EPS), a decrease from $122.1 million ($0.87 EPS) in H1 2016, impacted by the prior year's Visa Europe gain.
  • 5The company announced a pending acquisition of ACTIVE Network's communities and sports divisions for $1.2 billion (cash and stock), expected to close in Q4 2017.
  • 6Long-term debt stood at $4.18 billion (net of current portion) as of June 30, 2017, with the company drawing on its revolving credit facility to finance the upcoming ACTIVE Network acquisition.
  • 7Goodwill increased to $4.89 billion as of June 30, 2017, primarily from the Heartland merger.

Frequently Asked Questions

The primary driver of the revenue growth for both the three and six months ended June 30, 2017, was the merger with Heartland Payments Systems, Inc. ("Heartland"), which occurred in April 2016. Organic growth in the segments also contributed, although this was partially offset by unfavorable currency fluctuations.

Profitability, as measured by operating income, has significantly improved, with operating income increasing by 115.6% for Q2 and 52.1% for H1 2017 compared to the prior year. This led to an expansion of operating margins. However, net income attributable to Global Payments saw a slight increase in Q2 but a decrease in H1, mainly because the prior year's results included a substantial gain from the sale of Visa Europe, which was not present in the current period.

Global Payments announced an agreement to acquire the communities and sports divisions of Athlaction Topco, LLC ("ACTIVE Network") for an aggregate consideration of $1.2 billion. This transaction will be funded by $600 million in cash, primarily drawn from its Revolving Credit Facility, and $600 million in Global Payments' common stock. The acquisition is expected to close in the fourth quarter of 2017, subject to regulatory approval and other customary closing conditions.

As of June 30, 2017, Global Payments had approximately $4.18 billion in long-term debt (net of current portion) and $1.08 billion in cash and cash equivalents. The company has a substantial credit facility that it intends to draw upon to fund the cash portion of the ACTIVE Network acquisition. Management believes that its current liquidity, including its borrowing capacity and operating cash flows, will be sufficient to meet its obligations and fund the acquisition.