GLOBAL PAYMENTS INC. Global Payments Inc. (NYSE: GPN) today announced results for its fiscal third quarter ended February 29, 2016.
“We delivered strong financial results for the quarter, accelerating growth across our key markets. We are especially pleased with our performance in North America and Europe, with sequentially higher adjusted net revenue growth in the United States direct channel and the United Kingdom,” said Chief Executive Officer Jeff Sloan. “We also grew margins in each region, highlighting solid execution.”
Sloan continued, “We are delighted with the progress we have made on the partnership with Heartland Payment Systems and look forward to closing the transaction later this month. The combination with Heartland will transform Global Payments into the leading provider of payments technology solutions worldwide.”
Third Quarter 2016 Summary
- Adjusted net revenue grew 6% to $497.0 million, compared to $467.8 million in the third quarter of fiscal 2015. On a constant currency basis, adjusted net revenue grew 11%.
- Cash diluted earnings per share grew 17% to $0.70, compared to $0.60 in the third quarter of fiscal 2015. On a constant currency basis, cash diluted earnings per share grew 28%.
- Cash operating margin expanded to 28.7%, a 50 basis point increase over the third quarter of fiscal 2015. On a constant currency basis, cash operating margin increased 110 basis points.
- GAAP revenues were $679.9 million, compared to $665.0 million in the third quarter of fiscal 2015, and diluted earnings per share were $0.53, compared to $0.46 in the prior year.
“We exceeded our expectations for organic adjusted net revenue growth, cash operating margin expansion and cash earnings per share growth for the quarter,” stated Cameron Bready, Executive Vice President and Chief Financial Officer. “As a result of this performance and despite the impacts of continued foreign exchange headwinds, we are pleased to again raise our expectations for fiscal 2016.”
Increased Fiscal 2016 Outlook
For the full year of fiscal 2016, the company expects to be at the upper end of its constant currency adjusted net revenue growth expectation of 10% to 12% over fiscal 2015. Global Payments is also raising expectations for margin expansion and cash earnings per share and now expects annual fiscal 2016 cash operating margin to increase by at least 100 basis points on a constant currency basis and earnings per share on a cash basis to range from $2.93 to $3.00, reflecting growth of 16% to 19% over fiscal 2015. The company’s fiscal 2016 outlook does not include any impact from the Heartland acquisition.
Capital Allocation
Global Payments’ Board of Directors approved a fiscal 2016 third quarter dividend of $0.01 per share payable May 27, 2016 to shareholders of record as of May 13, 2016.
In addition, upon the closing of the Heartland Payment Systems transaction, the company intends to resume its normal capital allocation policies, including being a consistent buyer of its stock.
Conference Call
Global Payments’ management will host a conference call today, April 6, 2016 at 8:00 a.m. ET to discuss financial results and business highlights. Callers may access the conference call via the investor relations page of the company’s website at www.globalpaymentsinc.com; or callers in North America may dial 877-674-6428 and callers outside North America may dial 970-315-0457. A replay of the call will be archived on the company's website within two hours of the live call.
Non-GAAP Financial Measures
Global Payments supplemented revenues, income and earnings per share information determined in accordance with GAAP by providing income and related earnings per share on a "cash earnings" basis and adjusted net revenue in this earnings release to assist with evaluating performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of operations.
Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release.
About Global Payments
Global Payments Inc. (NYSE: GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our technologies, partnerships and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world.
Headquartered in Atlanta, Georgia with approximately 4,500 employees worldwide, Global Payments is a Fortune 1000 Company with merchants and partners in 29 countries throughout North America, Europe, the Asia-Pacific region and Brazil. For more information about Global Payments, our Service. Driven. Commerce brand and our technologies, please visit www.globalpaymentsinc.com.
Forward-Looking Statements
Investors are cautioned that some of the statements we use in this release contain forward-looking statements and are made pursuant to the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties and depend upon future events or conditions. Actual events or results might differ materially from those expressed or forecasted in these forward-looking statements. Accordingly, we cannot guarantee you that our plans and expectations will be achieved. Such statements may include, but are not limited to, statements about the benefits of the proposed merger between Global Payments and Heartland, including future financial and operating results, the combined company's plans, objectives, expectations and intentions and other statements that are not historical facts. Important factors, among others, associated with the proposed acquisition of Heartland that could cause actual events or results to differ materially from those anticipated by our forward-looking statements or historical performance include the ability to meet closing conditions to the merger at all or on the expected terms and schedule, including without limitation the approval of Heartland’s stockholders; delay in closing the merger or failure to consummate the merger; difficulties and delays in integrating the Heartland business or fully realizing cost savings and other benefits of the merger at all or within the expected time period; business disruption during the pendency of the merger or following the merger making it more difficult to maintain business and operational relationships, including financial institution sponsorship; loss of key personnel, Global Payments’ and Heartland’s ability to accurately predict future market conditions; and changes in laws, regulations or network rules or interpretations thereof impacting Global Payments or Heartland. Additional factors not directly associated with the proposed acquisition of Heartland but that may otherwise cause events or results to differ materially from those anticipated by our forward-looking statements or historical performance can be found in Global Payments’ Annual Report on Form 10-K for the year ended May 31, 2015, Heartland’s Annual Report on Form 10-K for the year ended December 31, 2015 and each company’s subsequent filings with the SEC. Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.
SCHEDULE 1 UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands, except per share data) | ||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
| February 29, 2016 | February 28, 2015 | % Change | February 29, 2016 | February 28, 2015 | % Change | |||||||||||||||||||||||
| Revenues | $ | 679,940 | $ | 664,983 | 2.2 | % | $ | 2,151,086 | $ | 2,067,169 | 4.1 | % | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Cost of service | 258,728 | 250,255 | 3.4 | % | 801,959 | 767,890 | 4.4 | % | ||||||||||||||||||||
| Selling, general and administrative | 313,407 | 310,113 | 1.1 | % | 980,385 | 946,282 | 3.6 | % | ||||||||||||||||||||
| 572,135 | 560,368 | 2.1 | % | 1,782,344 | 1,714,172 | 4.0 | % | |||||||||||||||||||||
| Operating income | 107,805 | 104,615 | 3.0 | % | 368,742 | 352,997 | 4.5 | % | ||||||||||||||||||||
| Interest and other income | 1,092 | 1,160 | (5.9 | )% | 3,526 | 3,634 | (3.0 | )% | ||||||||||||||||||||
| Interest and other expense | (13,300 | ) | (13,429 | ) | (1.0 | )% | (40,669 | ) | (34,789 | ) | 16.9 | % | ||||||||||||||||
| (12,208 | ) | (12,269 | ) | (0.5 | )% | (37,143 | ) | (31,155 | ) | 19.2 | % | |||||||||||||||||
| Income before income taxes | 95,597 | 92,346 | 3.5 | % | 331,599 | 321,842 | 3.0 | % | ||||||||||||||||||||
| Provision for income taxes | (22,685 | ) | (23,031 | ) | (1.5 | )% | (82,561 | ) | (82,837 | ) | (0.3 | )% | ||||||||||||||||
| Net income | 72,912 | 69,315 | 5.2 | % | 249,038 | 239,005 | 4.2 | % | ||||||||||||||||||||
Less: Net income attributable to noncontrolling interests, net of income tax | (3,851 | ) | (6,747 | ) | (42.9 | )% | (14,559 | ) | (26,290 | ) | (44.6 | )% | ||||||||||||||||
| Net income attributable to Global Payments | $ | 69,061 | $ | 62,568 | 10.4 | % | $ | 234,479 | $ | 212,715 | 10.2 | % | ||||||||||||||||
| Earnings per share attributable to Global Payments1: | ||||||||||||||||||||||||||||
| Basic | $ | 0.53 | $ | 0.47 | 12.8 | % | $ | 1.81 | $ | 1.58 | 14.6 | % | ||||||||||||||||
| Diluted | $ | 0.53 | $ | 0.46 | 15.2 | % | $ | 1.80 | $ | 1.57 | 14.6 | % | ||||||||||||||||
| Weighted-average shares outstanding1: | ||||||||||||||||||||||||||||
| Basic | 129,287 | 133,780 | 129,709 | 134,952 | ||||||||||||||||||||||||
| Diluted | 130,160 | 134,612 | 130,555 | 135,782 | ||||||||||||||||||||||||
1 Earnings per share data and weighted-average shares outstanding for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015. | ||||||||||||||||||||||||||||
SCHEDULE 2 UNAUDITED CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS2 GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands, except per share data) | ||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
| February 29, 2016 | February 28, 2015 | % Change | February 29, 2016 | February 28, 2015 | % Change | |||||||||||||||||||||||
| Adjusted net revenue | $ | 496,969 | $ | 467,757 | 6.2 | % | $ | 1,552,224 | $ | 1,456,634 | 6.6 | % | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Cost of service | 221,127 | 212,764 | 3.9 | % | 683,331 | 652,921 | 4.7 | % | ||||||||||||||||||||
| Selling, general and administrative | 133,434 | 122,881 | 8.6 | % | 409,710 | 380,898 | 7.6 | % | ||||||||||||||||||||
| 354,561 | 335,645 | 5.6 | % | 1,093,041 | 1,033,819 | 5.7 | % | |||||||||||||||||||||
| Operating income | 142,408 | 132,112 | 7.8 | % | 459,183 | 422,815 | 8.6 | % | ||||||||||||||||||||
| Interest and other income | 1,092 | 1,160 | (5.9 | )% | 3,526 | 3,634 | (3.0 | )% | ||||||||||||||||||||
| Interest and other expense | (13,300 | ) | (13,429 | ) | (1.0 | )% | (40,669 | ) | (34,789 | ) | 16.9 | % | ||||||||||||||||
| (12,208 | ) | (12,269 | ) | (0.5 | )% | (37,143 | ) | (31,155 | ) | 19.2 | % | |||||||||||||||||
| Income before income taxes | 130,200 | 119,843 | 8.6 | % | 422,040 | 391,660 | 7.8 | % | ||||||||||||||||||||
| Provision for income taxes | (34,204 | ) | (31,844 | ) | 7.4 | % | (111,000 | ) | (106,086 | ) | 4.6 | % | ||||||||||||||||
| Net income | 95,996 | 87,999 | 9.1 | % | 311,040 | 285,574 | 8.9 | % | ||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests, net of income tax | (4,914 | ) | (7,825 | ) | (37.2 | )% | (17,429 | ) | (29,776 | ) | (41.5 | )% | ||||||||||||||||
| Net income attributable to Global Payments | $ | 91,082 | $ | 80,174 | 13.6 | % | $ | 293,611 | $ | 255,798 | 14.8 | % | ||||||||||||||||
| Earnings per share attributable to Global Payments1: | ||||||||||||||||||||||||||||
| Basic | $ | 0.70 | $ | 0.60 | 16.7 | % | $ | 2.26 | $ | 1.90 | 18.9 | % | ||||||||||||||||
| Diluted | $ | 0.70 | $ | 0.60 | 16.7 | % | $ | 2.25 | $ | 1.88 | 19.7 | % | ||||||||||||||||
| Weighted-average shares outstanding1: | ||||||||||||||||||||||||||||
| Basic | 129,287 | 133,780 | 129,709 | 134,952 | ||||||||||||||||||||||||
| Diluted | 130,160 | 134,612 | 130,555 | 135,782 | ||||||||||||||||||||||||
1 Earnings per share data and weighted-average shares outstanding for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015. | ||||||||||||||||||||||||||||
2 See Schedules 7 and 8 for a reconciliation of adjusted net revenue and cash earnings to the most comparable GAAP measures and Schedule 10 for a discussion of non-GAAP financial measures. | ||||||||||||||||||||||||||||
SCHEDULE 3 UNAUDITED SEGMENT INFORMATION GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands) | ||||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||
| February 29, 2016 | February 28, 2015 | % Change | ||||||||||||||||||||||||||
| GAAP | Adjusted Net Revenue and Cash Earnings1 | GAAP | Adjusted Net Revenue and Cash Earnings1 | GAAP | Adjusted Net Revenue and Cash Earnings1 | |||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||
| North America | $ | 478,059 | $ | 311,617 | $ | 473,063 | $ | 293,385 | 1.1 | % | 6.2 | % | ||||||||||||||||
| Europe | 147,002 | 130,473 | 138,378 | 120,830 | 6.2 | % | 8.0 | % | ||||||||||||||||||||
| Asia-Pacific | 54,879 | 54,879 | 53,542 | 53,542 | 2.5 | % | 2.5 | % | ||||||||||||||||||||
| Total | $ | 679,940 | $ | 496,969 | $ | 664,983 | $ | 467,757 | 2.2 | % | 6.2 | % | ||||||||||||||||
| Operating income: | ||||||||||||||||||||||||||||
| North America | $ | 71,379 | $ | 84,838 | $ | 66,723 | $ | 77,746 | 7.0 | % | 9.1 | % | ||||||||||||||||
| Europe | 59,056 | 64,902 | 52,710 | 59,986 | 12.0 | % | 8.2 | % | ||||||||||||||||||||
| Asia-Pacific | 16,025 | 17,792 | 12,192 | 13,836 | 31.4 | % | 28.6 | % | ||||||||||||||||||||
| Corporate | (38,655 | ) | (25,124 | ) | (27,010 | ) | (19,456 | ) | 43.1 | % | 29.1 | % | ||||||||||||||||
| Total | $ | 107,805 | $ | 142,408 | $ | 104,615 | $ | 132,112 | 3.0 | % | 7.8 | % | ||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||||
| February 29, 2016 | February 28, 2015 | % Change | ||||||||||||||||||||||||||
| GAAP | Adjusted Net Revenue and Cash Earnings1 | GAAP | Adjusted Net Revenue and Cash Earnings1 | GAAP | Adjusted Net Revenue and Cash Earnings1 | |||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||
| North America | $ | 1,520,250 | $ | 977,935 | $ | 1,465,845 | $ | 914,219 | 3.7 | % | 7.0 | % | ||||||||||||||||
| Europe | 473,376 | 416,829 | 461,140 | 402,231 | 2.7 | % | 3.6 | % | ||||||||||||||||||||
| Asia-Pacific | 157,460 | 157,460 | 140,184 | 140,184 | 12.3 | % | 12.3 | % | ||||||||||||||||||||
| Total | $ | 2,151,086 | $ | 1,552,224 | $ | 2,067,169 | $ | 1,456,634 | 4.0 | % | 7.0 | % | ||||||||||||||||
| Operating income: | ||||||||||||||||||||||||||||
| North America | $ | 234,014 | $ | 274,838 | $ | 218,906 | $ | 252,480 | 6.9 | % | 8.9 | % | ||||||||||||||||
| Europe | 193,801 | 210,122 | 184,318 | 200,691 | 5.1 | % | 4.7 | % | ||||||||||||||||||||
| Asia-Pacific | 40,115 | 46,118 | 30,629 | 33,801 | 31.0 | % | 36.4 | % | ||||||||||||||||||||
| Corporate | (99,188 | ) | (71,895 | ) | (80,856 | ) | (64,157 | ) | 22.7 | % | 12.1 | % | ||||||||||||||||
| Total | $ | 368,742 | $ | 459,183 | $ | 352,997 | $ | 422,815 | 4.0 | % | 9.0 | % | ||||||||||||||||
1 See Schedule 9 for a reconciliation of adjusted net revenue and cash earnings segment information to the most comparable GAAP measures and Schedule 10 for a discussion of non-GAAP financial measures. | ||||||||||||||||||||||||||||
SCHEDULE 4 UNAUDITED CONSOLIDATED BALANCE SHEETS GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands, except share data) | ||||||||||
February 29, | May 31, 2015 | |||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 825,500 | $ | 650,739 | ||||||
| Accounts receivable, net of allowances for doubtful accounts of $621 and $468, respectively | 172,848 | 202,390 | ||||||||
| Claims receivable, net of allowances for doubtful accounts of $3,902 and $2,684, respectively | 7,575 | 548 | ||||||||
| Settlement processing assets | 1,000,683 | 2,394,822 | ||||||||
| Prepaid expenses and other current assets | 58,497 | 41,416 | ||||||||
| Total current assets | 2,065,103 | 3,289,915 | ||||||||
| Goodwill | 1,556,904 | 1,491,833 | ||||||||
| Other intangible assets, net | 645,541 | 560,136 | ||||||||
| Property and equipment, net | 366,445 | 374,143 | ||||||||
| Deferred income taxes | 24,549 | 30,428 | ||||||||
| Other | 40,559 | 32,846 | ||||||||
| Total assets | $ | 4,699,101 | $ | 5,779,301 | ||||||
| LIABILITIES AND EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Lines of credit | $ | 189,921 | $ | 592,629 | ||||||
| Current portion of long-term debt | 86,402 | 61,784 | ||||||||
| Accounts payable and accrued liabilities | 285,572 | 312,647 | ||||||||
| Settlement processing obligations | 1,160,951 | 2,033,900 | ||||||||
| Income taxes payable | 25,286 | 14,228 | ||||||||
| Total current liabilities | 1,748,132 | 3,015,188 | ||||||||
| Long-term debt | 1,787,675 | 1,678,283 | ||||||||
| Deferred income taxes | 195,354 | 202,855 | ||||||||
| Other noncurrent liabilities | 15,190 | 19,422 | ||||||||
| Total liabilities | 3,746,351 | 4,915,748 | ||||||||
| Commitments and contingencies | ||||||||||
| Equity: | ||||||||||
| Preferred stock, no par value; 5,000,000 shares authorized and none issued | — | — | ||||||||
| Common stock, no par value; 200,000,000 shares authorized; 129,258,574 issued and outstanding at February 29, 2016 and 130,557,676 issued and outstanding at May 31, 2015 | — | — | ||||||||
| Paid-in capital | 136,405 | 148,742 | ||||||||
| Retained earnings | 981,013 | 795,226 | ||||||||
| Accumulated other comprehensive loss | (277,301 | ) | (185,992 | ) | ||||||
| Total Global Payments shareholders’ equity | 840,117 | 757,976 | ||||||||
| Noncontrolling interests | 112,633 | 105,577 | ||||||||
| Total equity | 952,750 | 863,553 | ||||||||
| Total liabilities and equity | $ | 4,699,101 | $ | 5,779,301 | ||||||
SCHEDULE 5 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands) | ||||||||||
| Nine Months Ended | ||||||||||
| February 29, 2016 | February 28, 2015 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Net income | $ | 249,038 | $ | 239,005 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation and amortization of property and equipment | 54,343 | 48,628 | ||||||||
| Amortization of acquired intangibles | 62,331 | 54,184 | ||||||||
| Share-based compensation expense | 20,472 | 14,827 | ||||||||
| Provision for operating losses and bad debts | 15,827 | 10,530 | ||||||||
| Deferred income taxes | (3,292 | ) | 13,479 | |||||||
| Other, net | 2,528 | 469 | ||||||||
| Changes in operating assets and liabilities, net of the effects of acquisitions: | ||||||||||
| Accounts receivable | 23,428 | 32,124 | ||||||||
| Claims receivable | (24,388 | ) | (7,159 | ) | ||||||
| Settlement processing assets and obligations, net | 523,765 | (27,948 | ) | |||||||
| Prepaid expenses and other assets | (26,146 | ) | (5,687 | ) | ||||||
| Accounts payable and other liabilities | (30,514 | ) | (36,044 | ) | ||||||
| Income taxes payable | 10,627 | 10,677 | ||||||||
| Net cash provided by operating activities | 878,019 | 347,085 | ||||||||
| Cash flows from operating activities: | ||||||||||
| Business, intangible and other asset acquisitions, net of cash acquired | (241,982 | ) | (232,864 | ) | ||||||
| Capital expenditures | (57,548 | ) | (56,746 | ) | ||||||
| Principal collections on financing receivables | — | 219 | ||||||||
| Net proceeds from sales of investments and business | — | 10,597 | ||||||||
| Net cash used in investing activities | (299,530 | ) | (278,794 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Net (repayments) borrowings on lines of credit | (388,120 | ) | 44,622 | |||||||
| Proceeds from issuance of long-term debt | 3,186,175 | 1,593,500 | ||||||||
| Principal payments of long-term debt | (3,050,175 | ) | (1,378,679 | ) | ||||||
| Payment of debt issuance costs | (4,934 | ) | — | |||||||
| Repurchase of common stock | (82,832 | ) | (231,844 | ) | ||||||
| Proceeds from stock issued under share-based compensation plans | 7,279 | 18,867 | ||||||||
| Common stock repurchased - share-based compensation plans | (11,812 | ) | (16,175 | ) | ||||||
| Tax benefit from share-based compensation plans | 6,625 | 3,851 | ||||||||
| Purchase of subsidiary shares from noncontrolling interest | (7,550 | ) | — | |||||||
| Distributions to noncontrolling interests | (18,568 | ) | (19,355 | ) | ||||||
| Dividends paid | (3,895 | ) | (4,035 | ) | ||||||
| Net cash (used in) provided by financing activities | (367,807 | ) | 10,752 | |||||||
| Effect of exchange rate changes on cash | (35,921 | ) | (50,767 | ) | ||||||
| Increase in cash and cash equivalents | 174,761 | 28,276 | ||||||||
| Cash and cash equivalents, beginning of the period | 650,739 | 581,872 | ||||||||
| Cash and cash equivalents, end of the period | $ | 825,500 | $ | 610,148 | ||||||
SCHEDULE 6 UNAUDITED RECONCILIATION OF FREE CASH FLOW TO GAAP MEASURES GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands) | |||||
| Three Months Ended | |||||
| February 29, 2016 | |||||
| Net cash provided by operating activities | $ | 423,949 | |||
| Changes in settlement processing assets and liabilities, net | (315,319 | ) | |||
| Capital expenditures | (21,302 | ) | |||
| Distributions to noncontrolling interests | (10,410 | ) | |||
| Free Cash Flow1 | $ | 76,918 | |||
1Free Cash Flow is a non-GAAP measure. See "Non-GAAP Financial Measures" discussion on Schedule 10. | |||||
SCHEDULE 7 UNAUDITED RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS TO GAAP MEASURES GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands, except per share data) | |||||||||||||||||||||||||
| Three Months Ended February 29, 2016 | |||||||||||||||||||||||||
| GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenue and Cash Earnings | |||||||||||||||||||||
| Revenues | $ | 679,940 | $ | (182,971 | ) | $ | — | $ | — | $ | 496,969 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of service | 258,728 | (16,529 | ) | (21,072 | ) | — | 221,127 | ||||||||||||||||||
| Selling, general and administrative | 313,407 | (166,442 | ) | (7,000 | ) | (6,531 | ) | 133,434 | |||||||||||||||||
| 572,135 | (182,971 | ) | (28,072 | ) | (6,531 | ) | 354,561 | ||||||||||||||||||
| Operating income | 107,805 | — | 28,072 | 6,531 | 142,408 | ||||||||||||||||||||
| Interest and other income | 1,092 | — | — | — | 1,092 | ||||||||||||||||||||
| Interest and other expense | (13,300 | ) | — | — | — | (13,300 | ) | ||||||||||||||||||
| (12,208 | ) | — | — | — | (12,208 | ) | |||||||||||||||||||
| Income before income taxes | 95,597 | — |
| 28,072 | 6,531 | 130,200 | |||||||||||||||||||
| Provision for income taxes | (22,685 | ) | — | (9,215 | ) | (2,304 | ) | (34,204 | ) | ||||||||||||||||
| Net income | 72,912 | — | 18,857 | 4,227 | 95,996 | ||||||||||||||||||||
Less: Net income attributable to noncontrolling interests, net of income tax | (3,851 | ) | — | (1,063 | ) | — | (4,914 | ) | |||||||||||||||||
| Net income attributable to Global Payments | $ | 69,061 | $ | — | $ | 17,794 | $ | 4,227 | $ | 91,082 | |||||||||||||||
| Shares outstanding4 | 130,160 | 130,160 | |||||||||||||||||||||||
| Diluted earnings per share4 | $ | 0.53 | $ | — | $ | 0.14 | $ | 0.03 | $ | 0.70 | |||||||||||||||
| Three Months Ended February 28, 2015 | |||||||||||||||||||||||||
| GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenue and Cash Earnings | |||||||||||||||||||||
| Revenues | $ | 664,983 | $ | (199,102 | ) | $ | — | $ | 1,876 | $ | 467,757 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of service | 250,255 | (19,424 | ) | (18,067 | ) | — | 212,764 | ||||||||||||||||||
| Selling, general and administrative | 310,113 | (179,678 | ) | (5,682 | ) | (1,872 | ) | 122,881 | |||||||||||||||||
| 560,368 | (199,102 | ) | (23,749 | ) | (1,872 | ) | 335,645 | ||||||||||||||||||
| Operating income | 104,615 | — | 23,749 | 3,748 | 132,112 | ||||||||||||||||||||
| Interest and other income | 1,160 | — | — | — | 1,160 | ||||||||||||||||||||
| Interest and other expense | (13,429 | ) | — | — | — | (13,429 | ) | ||||||||||||||||||
| (12,269 | ) | — | — | — | (12,269 | ) | |||||||||||||||||||
| Income before income taxes | 92,346 | — | 23,749 | 3,748 | 119,843 | ||||||||||||||||||||
| Provision for income taxes | (23,031 | ) | — | (7,782 | ) | (1,031 | ) | (31,844 | ) | ||||||||||||||||
| Net income | 69,315 | — | 15,967 | 2,717 | 87,999 | ||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests, net of income tax | (6,747 | ) | — | (1,078 | ) | — | (7,825 | ) | |||||||||||||||||
| Net income attributable to Global Payments | $ | 62,568 | $ | — | $ | 14,889 | $ | 2,717 | $ | 80,174 | |||||||||||||||
| Shares outstanding4 | 134,612 | 134,612 | |||||||||||||||||||||||
| Diluted earnings per share4 | $ | 0.46 | $ | — | $ | 0.11 | $ | 0.02 | $ | 0.60 | |||||||||||||||
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company. | |||||||||||||||||||||||||
2 Represents adjustments to exclude acquisition-related amortization expense and share-based compensation expense and the related income tax benefits of each. | |||||||||||||||||||||||||
3 For the three months ended February 29, 2016, represents acquisition-related costs along with the related income tax effects. For the three months ended February 28, 2015, the revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustment represents certain business tax assessments in the U.S. for prior periods along with the related income tax effects of each. | |||||||||||||||||||||||||
4 Shares outstanding and diluted earnings per share for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015. | |||||||||||||||||||||||||
See "Non-GAAP Financial Measures" discussion on Schedule 10. | |||||||||||||||||||||||||
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SCHEDULE 8 UNAUDITED RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS TO GAAP MEASURES GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands, except per share data) | |||||||||||||||||||||||||
| Nine Months Ended February 29, 2016 | |||||||||||||||||||||||||
| GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenue and Cash Earnings | |||||||||||||||||||||
| Revenues | $ | 2,151,086 | $ | (598,862 | ) | $ | — | $ | — | $ | 1,552,224 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of service | 801,959 | (56,547 | ) | (63,980 | ) | 1,899 | 683,331 | ||||||||||||||||||
| Selling, general and administrative | 980,385 | (542,315 | ) | (20,472 | ) | (7,888 | ) | 409,710 | |||||||||||||||||
| 1,782,344 | (598,862 | ) | (84,452 | ) | (5,989 | ) | 1,093,041 | ||||||||||||||||||
| Operating income | 368,742 | — | 84,452 | 5,989 | 459,183 | ||||||||||||||||||||
| Interest and other income | 3,526 | — | — | — | 3,526 | ||||||||||||||||||||
| Interest and other expense | (40,669 | ) | — | — | — | (40,669 | ) | ||||||||||||||||||
| (37,143 | ) | — | — | — | (37,143 | ) | |||||||||||||||||||
| Income before income taxes | 331,599 | — | 84,452 | 5,989 | 422,040 | ||||||||||||||||||||
| Provision for income taxes | (82,561 | ) | — | (27,426 | ) | (1,013 | ) | (111,000 | ) | ||||||||||||||||
| Net income | 249,038 | — | 57,026 | 4,976 | 311,040 | ||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests, net of income tax | (14,559 | ) | — | (2,870 | ) | — | (17,429 | ) | |||||||||||||||||
| Net income attributable to Global Payments | $ | 234,479 | $ | — | $ | 54,156 | $ | 4,976 | $ | 293,611 | |||||||||||||||
| Shares outstanding4 | 130,555 | 130,555 | |||||||||||||||||||||||
| Diluted earnings per share4 | $ | 1.80 | $ | — | $ | 0.41 | $ | 0.04 | $ | 2.25 | |||||||||||||||
| Nine Months Ended February 28, 2015 | |||||||||||||||||||||||||
| GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenue and Cash Earnings | |||||||||||||||||||||
| Revenues | $ | 2,067,169 | $ | (612,411 | ) | $ | — | $ | 1,876 | $ | 1,456,634 | ||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||
| Cost of service | 767,890 | (60,785 | ) | (54,184 | ) | — | 652,921 | ||||||||||||||||||
| Selling, general and administrative | 946,282 | (551,626 | ) | (14,827 | ) | 1,069 | 380,898 | ||||||||||||||||||
| 1,714,172 | (612,411 | ) | (69,011 | ) | 1,069 | 1,033,819 | |||||||||||||||||||
| Operating income | 352,997 | — | 69,011 | 807 | 422,815 | ||||||||||||||||||||
| Interest and other income | 3,634 | — | — | — | 3,634 | ||||||||||||||||||||
| Interest and other expense | (34,789 | ) | — | — | — | (34,789 | ) | ||||||||||||||||||
| (31,155 | ) | — | — | — | (31,155 | ) | |||||||||||||||||||
| Income before income taxes | 321,842 | — | 69,011 | 807 | 391,660 | ||||||||||||||||||||
| Provision for income taxes | (82,837 | ) | — | (22,806 | ) | (443 | ) | (106,086 | ) | ||||||||||||||||
| Net income | 239,005 | — | 46,205 | 364 | 285,574 | ||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests, net of income tax | (26,290 | ) | — | (3,486 | ) | — | (29,776 | ) | |||||||||||||||||
| Net income attributable to Global Payments | $ | 212,715 | $ | — | $ | 42,719 | $ | 364 | $ | 255,798 | |||||||||||||||
| Shares outstanding4 | 135,782 | 135,782 | |||||||||||||||||||||||
| Diluted earnings per share4 | $ | 1.57 | $ | — | $ | 0.31 | $ | — | $ | 1.88 | |||||||||||||||
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company. | |||||||||||||||||||||||||
2 Represents adjustments to exclude acquisition-related amortization expense and share-based compensation expense and the related income tax benefits of each. | |||||||||||||||||||||||||
3 For the nine months ended February 29, 2016, represents acquisition-related costs, employee termination benefits and recoveries associated with a U.K. vendor outage along with the related income tax effects of each as well as certain other adjustments to the income tax provision. For the nine months ended February 28, 2015, the revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustments represent certain business tax assessments in the U.S. for prior periods and a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia along with the related income tax effects of each. | |||||||||||||||||||||||||
4 Shares outstanding and diluted earnings per share for prior periods have been adjusted for a two-for-one stock split in the form of a stock dividend paid on November 2, 2015. | |||||||||||||||||||||||||
See "Non-GAAP Financial Measures" discussion on Schedule 10. | |||||||||||||||||||||||||
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SCHEDULE 9 UNAUDITED RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS SEGMENT INFORMATION TO GAAP MEASURES GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
| February 29, 2016 | February 28, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||
| GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenues and Cash Earnings | GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenues and Cash Earnings | |||||||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 478,059 | $ | (166,442 | ) | $ | — | $ | — | $ | 311,617 | $ | 473,063 | $ | (179,678 | ) | $ | — | $ | — | $ | 293,385 | ||||||||||||||||||||||||||||
| Europe | 147,002 | (16,529 | ) | — | — | 130,473 | 138,378 | (19,424 | ) | — | 1,876 | 120,830 | ||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 54,879 | — | — | — | 54,879 | 53,542 | — | — | — | 53,542 | ||||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 679,940 | $ | (182,971 | ) | $ | — | $ | — | $ | 496,969 | $ | 664,983 | $ | (199,102 | ) | $ | — | $ | 1,876 | $ | 467,757 | ||||||||||||||||||||||||||||
| Operating income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 71,379 | $ | — | $ | 13,459 | $ | — | $ | 84,838 | $ | 66,723 | $ | — | $ | 11,023 | $ | — | $ | 77,746 | ||||||||||||||||||||||||||||||
| Europe | 59,056 | — | 5,846 | — | 64,902 | 52,710 | — | 5,400 | 1,876 | 59,986 | ||||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 16,025 | — | 1,767 | — | 17,792 | 12,192 | — | 1,644 | — | 13,836 | ||||||||||||||||||||||||||||||||||||||||
| Corporate | (38,655 | ) | — | 7,000 | 6,531 | (25,124 | ) | (27,010 | ) | — | 5,682 | 1,872 | (19,456 | ) | ||||||||||||||||||||||||||||||||||||
| Operating income | $ | 107,805 | $ | — | $ | 28,072 | $ | 6,531 | $ | 142,408 | $ | 104,615 | $ | — | $ | 23,749 | $ | 3,748 | $ | 132,112 | ||||||||||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
| February 29, 2016 | February 28, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||
| GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenues and Cash Earnings | GAAP | Net Revenue Adjustment1 | Cash Earnings Adjustments2 | Other3 | Adjusted Net Revenues and Cash Earnings | |||||||||||||||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 1,520,250 | $ | (542,315 | ) | $ | — | $ | — | $ | 977,935 | $ | 1,465,845 | $ | (551,626 | ) | $ | — | $ | — | $ | 914,219 | ||||||||||||||||||||||||||||
| Europe | 473,376 | (56,547 | ) | — | — | 416,829 | 461,140 | (60,785 | ) | — | 1,876 | 402,231 | ||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 157,460 | — | — | — | 157,460 | 140,184 | — | — | — | 140,184 | ||||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 2,151,086 | $ | (598,862 | ) | $ | — | $ | — | $ | 1,552,224 | $ | 2,067,169 | $ | (612,411 | ) | $ | — | $ | 1,876 | $ | 1,456,634 | ||||||||||||||||||||||||||||
| Operating income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 234,014 | $ | — | $ | 40,599 | $ | 225 | $ | 274,838 | $ | 218,906 | $ | — | $ | 33,574 | $ | — | $ | 252,480 | ||||||||||||||||||||||||||||||
| Europe | 193,801 | — | 18,220 | (1,899 | ) | 210,122 | 184,318 | — | 17,438 | (1,065 | ) | 200,691 | ||||||||||||||||||||||||||||||||||||||
| Asia-Pacific | 40,115 | — | 5,161 | 842 | 46,118 | 30,629 | — | 3,172 | — | 33,801 | ||||||||||||||||||||||||||||||||||||||||
| Corporate | (99,188 | ) | — | 20,472 | 6,821 | (71,895 | ) | (80,856 | ) | — | 14,827 | 1,872 | (64,157 | ) | ||||||||||||||||||||||||||||||||||||
| Operating income | $ | 368,742 | $ | — | $ | 84,452 | $ | 5,989 | $ | 459,183 | $ | 352,997 | $ | — | $ | 69,011 | $ | 807 | $ | 422,815 | ||||||||||||||||||||||||||||||
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company. | ||||||||||||||||||||||||||||||||||||||||||||||||||
2 Represents adjustments to exclude acquisition-related amortization expense and share-based compensation expense. | ||||||||||||||||||||||||||||||||||||||||||||||||||
3 For the three months ended February 29, 2016, represents acquisition-related costs. For the nine months ended February 29, 2016, represents acquisition-related costs, employee termination benefits and recoveries associated with a U.K. vendor outage. For the three months ended February 28, 2015, the revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustment represents certain business tax assessments in the U.S. for prior periods. For the nine months ended February 28, 2015, the revenue adjustment represents select U.K. customer payments related to a vendor outage and the expense adjustments represent certain business tax assessments in the U.S. for prior periods and a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia. | ||||||||||||||||||||||||||||||||||||||||||||||||||
See "Non-GAAP Financial Measures" discussion on Schedule 10. | ||||||||||||||||||||||||||||||||||||||||||||||||||
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SCHEDULE 10 OUTLOOK SUMMARY GLOBAL PAYMENTS INC. AND SUBSIDIARIES (In billions, except per share data) | ||||||||||||
| Fiscal 2015 Actual | Fiscal 2016 Outlook3 | % Change | ||||||||||
| Revenues: | ||||||||||||
| GAAP Revenues | $ | 2.77 | $2.87 to $2.95 | 4% to 6% | ||||||||
| Adjustments1 | (0.82 | ) | (0.83 | ) | ||||||||
| Adjusted Net Revenue | $ | 1.95 | $2.06 to $2.10 | 6% to 8% | ||||||||
| Earnings Per Share2: | ||||||||||||
| GAAP Diluted EPS | $ | 2.06 | $2.36 to $2.43 | 15% to 18% | ||||||||
Acquisition-related amortization expense, share-based compensation expense and non-recurring items4 | 0.46 | 0.57 | ||||||||||
| Cash EPS | $ | 2.52 | $2.93 to $3.00 | 16% to 19% | ||||||||
1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company and, in fiscal 2015, a revenue adjustment for select U.K. customer payments related to a vendor outage. | ||||||||||||
2 Earnings per share data for prior periods have been adjusted to reflect a two-for-one stock split in the form of a stock dividend paid on November 2, 2015. | ||||||||||||
3 The Fiscal 2016 Outlook does not include the effect of the announced acquisition of Heartland Payment Systems. | ||||||||||||
4 Fiscal 2015 reflects acquisition related amortization expense of $0.34, share-based compensation expense of $0.09 and non-recurring items of $0.03, including a revenue adjustment for select U.K. customer payments related to a vendor outage and expense adjustments for charges related to employee termination benefits, non-cash losses from the retirement of property and equipment, a transaction-related tax associated with the acquisition of Realex, certain business tax assessments in the U.S. for prior periods, a gain on the sale of our Russia ATM business, reversal of previously recorded interest expense associated with a previously uncertain tax position and the related income tax effects of each. | ||||||||||||
NON-GAAP FINANCIAL MEASURES
Global Payments supplements revenues, income, earnings per share information and cash flows determined in accordance with U.S. GAAP by providing income and related earnings per share on a “cash earnings” basis, Adjusted Net Revenue and Free Cash Flow in this document to assist with evaluating our performance. In addition to GAAP measures, management uses these non-GAAP financial measures to focus on the factors the company believes are pertinent to the daily management of our operations. Management believes Adjusted Net Revenue more closely reflects the economic benefits to the company's core business and allows for better comparisons with industry peers. Management believes Free Cash Flow is a useful measure of our ability to service debt, return capital to shareholders, invest in the business, and demonstrate value creation of our underlying operations. Management uses these non-GAAP financial measures, together with other metrics, to set goals for and measure the performance of the business and to determine incentive compensation. Adjusted Net Revenue, income and earnings per share reported on a cash earnings basis and Free Cash Flow should be considered in addition to, and not as substitutes for, revenues, income, earnings per share and cash flows determined in accordance with GAAP. The measures of Adjusted Net Revenue, income and earnings per share on a cash earnings basis and Free Cash Flow reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.
Adjusted Net Revenue excludes gross-up related payments associated with certain wholesale lines of business to reflect economic benefits to the company. On a GAAP basis, these payments are presented gross in both revenues and operating expenses. The company defines Free Cash Flow as cash provided by operating activities, excluding the impact of changes in settlement assets and obligations, less capital expenditures and distributions to noncontrolling interests, each of which is derived from our consolidated statement of cash flows.
Income and the related earnings per share on a cash earnings basis exclude acquisition-related amortization expense, share-based compensation and certain other items specific to each reporting period as more fully described in the accompanying reconciliations in Schedule 7, Schedule 8 and Schedule 9. The tax rate used in determining the net income impact of cash earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.
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