filings.toolsGlobal Payments 10-Q 2023-06-30
Filed 2023-08-01. 8 sections, 181K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-16111
GLOBAL PAYMENTS INC.
(Exact name of registrant as specified in charter)
| Georgia | 58-2567903 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 3550 Lenox Road, Atlanta, Georgia | 30326 | |||||||||||||||||||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (770) 829-8000
| Securities registered pursuant to Section 12(b) of the Act | ||||||||
| Title of each class | Trading symbol | Name of exchange on which registered | ||||||
| Common stock, no par value | GPN | New York Stock Exchange | ||||||
| 4.875% Senior Notes due 2031 | GPN31A | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | ☐ | No | ☑ |
The number of shares of the issuer’s common stock, no par value, outstanding as of July 27, 2023 was 259,993,893.
GLOBAL PAYMENTS INC.
FORM 10-Q
For the quarterly period ended June 30, 2023
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| Three Months Ended | |||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||
| Revenues | $ | 2,452,469 | $ | 2,280,906 | |||||||
| Operating expenses: | |||||||||||
| Cost of service | 941,952 | 962,299 | |||||||||
| Selling, general and administrative | 1,013,514 | 863,179 | |||||||||
| Impairment of goodwill | — | 833,075 | |||||||||
| (Gain) loss on business dispositions | (105,738) | 152,211 | |||||||||
| 1,849,728 | 2,810,764 | ||||||||||
| Operating income (loss) | 602,741 | (529,858) | |||||||||
| Interest and other income | 27,944 | 2,956 | |||||||||
| Interest and other expense | (191,423) | (99,188) | |||||||||
| (163,479) | (96,232) | ||||||||||
| Income (loss) before income taxes and equity in income of equity method investments | 439,262 | (626,090) | |||||||||
| Income tax expense | 172,211 | 52,776 | |||||||||
| Income (loss) before equity in income of equity method investments | 267,051 | (678,866) | |||||||||
| Equity in income of equity method investments, net of tax | 17,155 | 13,815 | |||||||||
| Net income (loss) | 284,206 | (665,051) | |||||||||
| Net income attributable to noncontrolling interests, net of tax | (10,058) | (7,948) | |||||||||
| Net income (loss) attributable to Global Payments | $ | 274,148 | $ | (672,999) | |||||||
| Earnings (loss) per share attributable to Global Payments: | |||||||||||
| Basic earnings (loss) per share | $ | 1.05 | $ | (2.42) | |||||||
| Diluted earnings (loss) per share | $ | 1.05 | $ | (2.42) |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| Six Months Ended | |||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||
| Revenues | $ | 4,744,916 | $ | 4,437,160 | |||||||
| Operating expenses: | |||||||||||
| Cost of service | 1,889,705 | 1,919,457 | |||||||||
| Selling, general and administrative | 2,056,641 | 1,686,328 | |||||||||
| Impairment of goodwill | — | 833,075 | |||||||||
| Net loss on business dispositions | 139,095 | 152,211 | |||||||||
| 4,085,441 | 4,591,071 | ||||||||||
| Operating income (loss) | 659,475 | (153,911) | |||||||||
| Interest and other income | 39,097 | 4,667 | |||||||||
| Interest and other expense | (314,368) | (192,471) | |||||||||
| (275,271) | (187,804) | ||||||||||
| Income (loss) before income taxes and equity in income of equity method investments | 384,204 | (341,715) | |||||||||
| Income tax expense | 140,812 | 104,994 | |||||||||
| Income (loss) before equity in income of equity method investments | 243,392 | (446,709) | |||||||||
| Equity in income of equity method investments, net of tax | 36,394 | 31,294 | |||||||||
| Net income (loss) | 279,786 | (415,415) | |||||||||
| Net income attributable to noncontrolling interests, net of tax | (16,679) | (12,851) | |||||||||
| Net income (loss) attributable to Global Payments | $ | 263,107 | $ | (428,266) | |||||||
| Earnings (loss) per share attributable to Global Payments: | |||||||||||
| Basic earnings (loss) per share | $ | 1.00 | $ | (1.53) | |||||||
| Diluted earnings (loss) per share | $ | 1.00 | $ | (1.53) |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| Three Months Ended | |||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||
| Net income (loss) | $ | 284,206 | $ | (665,051) | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustments | 4,596 | (210,882) | |||||||||
| Reclassification of accumulated foreign currency translation losses to net loss as a result of the sale of a foreign entity | — | 62,925 | |||||||||
| Income tax (expense) benefit related to foreign currency translation adjustments | (343) | 963 | |||||||||
| Net unrealized gains on hedging activities | 40,078 | 5,051 | |||||||||
| Reclassification of net unrealized (gains) losses on hedging activities to interest expense | (901) | 7,534 | |||||||||
| Income tax expense related to hedging activities | (9,144) | (3,052) | |||||||||
| Other, net of tax | (22) | — | |||||||||
| Other comprehensive income (loss) | 34,264 | (137,461) | |||||||||
| Comprehensive income (loss) | 318,470 | (802,512) | |||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | 11,906 | (5,540) | |||||||||
| Comprehensive income (loss) attributable to Global Payments | $ | 306,564 | $ | (796,972) |
| Six Months Ended | |||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||
| Net income (loss) | $ | 279,786 | $ | (415,415) | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustments | 42,046 | (243,843) | |||||||||
| Reclassification of accumulated foreign currency translation losses to net loss as a result of the sale of a foreign entity | — | 62,925 | |||||||||
| Income tax (expense) benefit related to foreign currency translation adjustments | (530) | 1,634 | |||||||||
| Net unrealized gains (losses) on hedging activities | (7,973) | 13,985 | |||||||||
| Reclassification of net unrealized losses on hedging activities to interest expense | 485 | 16,979 | |||||||||
| Income tax (expense) benefit related to hedging activities | 1,806 | (7,508) | |||||||||
| Other, net of tax | (44) | — | |||||||||
| Other comprehensive income (loss) | 35,790 | (155,828) | |||||||||
| Comprehensive income (loss) | 315,576 | (571,243) | |||||||||
| Comprehensive income (loss) attributable to noncontrolling interests | 24,901 | (5,981) | |||||||||
| Comprehensive income (loss) attributable to Global Payments | $ | 290,675 | $ | (565,262) |
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements.
Executive Overview
We are a leading payments technology company delivering innovative software and services to our customers globally. Our technologies, services and team member expertise allow us to provide a broad range of solutions that enable our customers to operate their businesses more efficiently across a variety of channels around the world.
We have grown organically, as well as through acquisitions, and continue to invest in new technology solutions and innovation, infrastructure to support our growing business and the ongoing consolidation and enhancement of our operating platforms. These investments include new product development and innovation to further enhance and differentiate our suite of technology and cloud-based solutions available to customers, along with migration of certain underlying technology platforms to cloud environments to enhance performance, improve speed to market and drive cost efficiencies. We also continue to execute on integration and other activities, such as combining business operations, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures and realizing scale efficiencies.
We have furthered our business strategy through several recent key transactions, including the following:
-
On March 24, 2023, we acquired all of the outstanding common stock of EVO Payments, Inc. ("EVO") for total purchase consideration of $4.3 billion. EVO is a leading payment technology and services provider, offering an array of payment solutions to merchants ranging from small and middle market enterprises to multinational companies and organizations across the Americas and Europe. The cash portion of the purchase consideration was funded through cash on hand and borrowings from our revolving credit facility.
-
On April 26, 2023, we completed the sale of the consumer portion of our Netspend business for approximately $1 billion, subject to certain closing adjustments. In connection with the sale, we provided $675 million of seller financing and a five-year $50 million secured revolving facility available from the date of closing of the sale. We recognized a gain (loss) on business dispositions in our consolidated statement of income of $1.6 million and $(243.2) million during the three and six months ended June 30, 2023, respectively, related to the consumer business disposal group.
-
On April 1, 2023, we completed the sale of our gaming business for approximately $400.0 million, subject to certain closing adjustments. In connection with the sale, we provided $32 million of seller financing. We recognized a gain of $104.1 million during the three months ended June 30, 2023 in connection with the sale.
-
Our capital allocation priorities were supported by the issuance of Euro-denominated senior notes and the launch of a commercial paper program during the first quarter of 2023.
◦On March 17, 2023, we issued €800 million aggregate principal amount of 4.875% senior unsecured notes due March 2031 and received net proceeds of €790.6 million, or $843.6 million based on the exchange rate on the issuance date. The net proceeds from the offering were used for general corporate purposes.
◦In January 2023, we established a $2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue. The program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion on the revolving credit facility. The proceeds from issuances of
commercial paper notes will be used for acquisitions, to pay dividends, for debt refinancing or for other general corporate purposes.
Highlights related to our financial condition at June 30, 2023 and results of operations for the three and six months then ended include the following:
-
Consolidated revenues for the three and six months ended June 30, 2023 increased to $2,452.5 million and $4,744.9 million, respectively, compared to $2,280.9 million and $4,437.2 million, respectively, for the prior year. The increase in consolidated revenues was primarily due to an increase in transaction volumes and revenues from the recently acquired EVO business, partially offset by the effects on revenue of the divested businesses.
-
Merchant Solutions segment operating income and Issuer Solutions segment operating income and operating margin for the three and six months ended June 30, 2023 increased compared to the prior year primarily due to the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management.
-
Consolidated operating income for the three months ended June 30, 2023 included the favorable effects of the gain on sale of the gaming business disposition as described above, partially offset by an increase in acquisition and integration expenses as compared to the prior year, primarily related to the acquisition of EVO. Consolidated operating income for the six months ended June 30, 2023 also included the effects of the loss on sale of the consumer business as described above.
Risks Related to Macroeconomic Conditions
We are exposed to general economic conditions, including currency fluctuations, inflation, rising interest rates and health and social events or other conditions that affect the overall level of consumer, business and government spending, which could negatively affect our financial performance.
Certain of our operations are conducted in foreign currencies. Consequently, a portion of our revenues and expenses has been and may continue to be affected by fluctuations in foreign currency exchange rates. A continued strengthening of the U.S. dollar or other significant fluctuations in foreign currency exchange rates could result in an adverse effect on our future financial results; however, we are unable to predict the extent of the potential effect on our financial results.
We have reduced our interest rate risk through issuance of fixed rate debt in place of variable rate debt, including the effect of interest rate swap hedging arrangements to convert a significant portion of the eligible variable rate borrowings under our revolving credit facility to a fixed rate. However, inflationary pressure or interest rate fluctuations could adversely affect our business and financial performance as a result of higher costs and/or lower consumer spending. In addition, continued inflation or a rise in interest rates could result in an adverse effect on our future financial results and the recoverability of assets. However, as the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results.
In addition, failures of several financial institutions, including Silicon Valley Bank and Credit Suisse, have created uncertainty in the global financial markets and a greater focus on the potential failure of other banks in the future. Although we do not have exposure to and did not experience losses as a result of these failures, we regularly maintain cash balances with financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit or the equivalent outside the U.S. A disruption in financial markets could impair our banking partners, which could affect our ability to access our cash or cash equivalents, our ability to provide settlement services or our customers' ability to access their existing cash to fulfill their payment obligations to us. The occurrence of these events could negatively affect our business, financial condition and results of operations.
For a further discussion of trends, uncertainties and other factors that could affect our future operating results, see the section entitled “Risk Factors” in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent filings we make with the SEC.
Results of Operations
During 2022, as a result of then pending divestiture of our consumer business and changes in how the business is managed, we realigned the businesses previously comprising our Business and Consumer Solutions segment to include the business-to-business portion within our Issuer Solutions segment and the consumer portion forming our Consumer Solutions segment. The presentation of segment information for the three months ended June 30, 2022 has been recast to align with the segment presentation for the three months ended June 30, 2023. As described in “Note 3 – Business Dispositions” in the notes to the accompanying unaudited consolidated financial statements, during the second quarter of 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our former Consumer Solutions segment. Our reportable segments now include: Merchant Solutions and Issuer Solutions. Our former Consumer Solutions segment is presented below for periods prior to disposition. For further information about our reportable segments, see “Item 1. Business—Business Segments” within our Annual Report on Form 10-K for the year ended December 31, 2022, incorporated herein by reference, and “Note 15—Segment Information” in the notes to the accompanying unaudited consolidated financial statements.
The following table sets forth key selected financial data for the three months ended June 30, 2023 and 2022, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount. The income statement data for the three months ended June 30, 2023 and 2022 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 — Financial Statements.
| Three Months Ended June 30, 2023 | % of Revenues**(1)** | Three Months Ended June 30, 2022 | % of Revenues**(1)** | $ Change | % Change | ||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||
| Revenues(2): | |||||||||||||||||||||||||||||||||||
| Merchant Solutions | $ | 1,842,293 | 75.1 | % | $ | 1,581,716 | 69.3 | % | $ | 260,577 | 16.5 | % | |||||||||||||||||||||||
| Issuer Solutions | 590,441 | 24.1 | % | 559,639 | 24.5 | % | 30,802 | 5.5 | % | ||||||||||||||||||||||||||
| Consumer Solutions | 39,031 | 1.6 | % | 161,629 | 7.1 | % | (122,598) | NM | |||||||||||||||||||||||||||
| Intersegment eliminations | (19,296) | (0.8) | % | (22,078) | (1.0) | % | 2,782 | (12.6) | % | ||||||||||||||||||||||||||
| Consolidated revenues | $ | 2,452,469 | 100.0 | % | $ | 2,280,906 | 100.0 | % | $ | 171,563 | 7.5 | % | |||||||||||||||||||||||
| Consolidated operating expenses(2): | |||||||||||||||||||||||||||||||||||
| Cost of service | $ | 941,952 | 38.4 | % | $ | 962,299 | 42.2 | % | $ | (20,347) | (2.1) | % | |||||||||||||||||||||||
| Selling, general and administrative | 1,013,514 | 41.3 | % | 863,179 | 37.8 | % | 150,335 | 17.4 | % | ||||||||||||||||||||||||||
| Impairment of goodwill | — | — | % | 833,075 | 36.5 | % | (833,075) | NM | |||||||||||||||||||||||||||
| (Gain) loss on business dispositions | (105,738) | (4.3) | % | 152,211 | 6.7 | % | (257,949) | NM | |||||||||||||||||||||||||||
| Operating expenses | $ | 1,849,728 | 75.4 | % | $ | 2,810,764 | 123.2 | % | $ | (961,036) | (34.2) | % | |||||||||||||||||||||||
| Operating income (loss)(2): | |||||||||||||||||||||||||||||||||||
| Merchant Solutions | $ | 603,548 | 24.6 | % | $ | 535,359 | 23.5 | % | $ | 68,189 | 12.7 | % | |||||||||||||||||||||||
| Issuer Solutions | 95,701 | 3.9 | % | 77,499 | 3.4 | % | 18,202 | 23.5 | % | ||||||||||||||||||||||||||
| Consumer Solutions | 1,890 | 0.1 | % | 21,942 | 1.0 | % | (20,052) | NM | |||||||||||||||||||||||||||
| Corporate(3) | (204,136) | (8.3) | % | (179,372) | (7.9) | % | (24,764) | 13.8 | % | ||||||||||||||||||||||||||
| Impairment of goodwill | — | — | % | (833,075) | (36.5) | % | 833,075 | NM | |||||||||||||||||||||||||||
| Gain (loss) on business dispositions | 105,738 | 4.3 | % | (152,211) | (6.7) | % | 257,949 | NM | |||||||||||||||||||||||||||
| Operating income (loss) | $ | 602,741 | 24.6 | % | $ | (529,858) | (23.2) | % | $ | 1,132,599 | NM | ||||||||||||||||||||||||
| Operating margin(2): | |||||||||||||||||||||||||||||||||||
| Merchant Solutions | 32.8 | % | 33.8 | % | (1.0) | % | |||||||||||||||||||||||||||||
| Issuer Solutions | 16.2 | % | 13.8 | % | 2.4 | % | |||||||||||||||||||||||||||||
| Consumer Solutions | 4.8 | % | 13.6 | % | (8.8) | % |
NM = Not meaningful
(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, consolidated operating expenses, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates and the effects of divested businesses through the respective disposal dates. See “Note 2—Acquisition” and “Note 3—Business Dispositions” for further discussion.
(3) Operating loss for Corporate included acquisition and integration expenses of $60.2 million and $61.4 million for the three months ended June 30, 2023 and 2022, respectively.
The following table sets forth key selected financial data for the six months ended June 30, 2023 and 2022, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount. The income statement data for the six months ended June 30, 2023 and 2022 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 — Financial Statements.
| Six Months Ended June 30, 2023 | % of Revenues**(1)** | Six Months Ended June 30, 2022 | % of Revenues**(1)** | $ Change | % Change | ||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | |||||||||||||||||||||||||||||||||||
| Revenues(2): | |||||||||||||||||||||||||||||||||||
| Merchant Solutions | $ | 3,447,903 | 72.7 | % | $ | 3,054,735 | 68.8 | % | $ | 393,168 | 12.9 | % | |||||||||||||||||||||||
| Issuer Solutions | 1,161,349 | 24.5 | % | 1,096,965 | 24.7 | % | 64,384 | 5.9 | % | ||||||||||||||||||||||||||
| Consumer Solutions | 182,740 | 3.9 | % | 330,744 | 7.5 | % | (148,004) | NM | |||||||||||||||||||||||||||
| Intersegment eliminations | (47,076) | (1.0) | % | (45,284) | (1.0) | % | (1,792) | 4.0 | % | ||||||||||||||||||||||||||
| Consolidated revenues | $ | 4,744,916 | 100.0 | % | $ | 4,437,160 | 100.0 | % | $ | 307,756 | 6.9 | % | |||||||||||||||||||||||
| Consolidated operating expenses(2): | |||||||||||||||||||||||||||||||||||
| Cost of service | $ | 1,889,705 | 39.8 | % | $ | 1,919,457 | 43.3 | % | $ | (29,752) | (1.6) | % | |||||||||||||||||||||||
| Selling, general and administrative | 2,056,641 | 43.3 | % | 1,686,328 | 38.0 | % | 370,313 | 22.0 | % | ||||||||||||||||||||||||||
| Impairment of goodwill | — | — | % | 833,075 | 18.8 | % | (833,075) | NM | |||||||||||||||||||||||||||
| Net loss on business dispositions | 139,095 | 2.9 | % | 152,211 | 3.4 | % | (13,116) | NM | |||||||||||||||||||||||||||
| Operating expenses | $ | 4,085,441 | 86.1 | % | $ | 4,591,071 | 103.5 | % | $ | (505,630) | (11.0) | % | |||||||||||||||||||||||
| Operating income (loss)(2): | |||||||||||||||||||||||||||||||||||
| Merchant Solutions | $ | 1,110,757 | 23.4 | % | $ | 979,889 | 22.1 | % | $ | 130,868 | 13.4 | % | |||||||||||||||||||||||
| Issuer Solutions | 178,511 | 3.8 | % | 146,641 | 3.3 | % | 31,870 | 21.7 | % | ||||||||||||||||||||||||||
| Consumer Solutions | (3,908) | (0.1) | % | 44,560 | 1.0 | % | (48,468) | NM | |||||||||||||||||||||||||||
| Corporate(3) | (486,790) | (10.3) | % | (339,715) | (7.7) | % | (147,075) | 43.3 | % | ||||||||||||||||||||||||||
| Impairment of goodwill | — | — | % | (833,075) | (18.8) | % | 833,075 | NM | |||||||||||||||||||||||||||
| Net loss on business dispositions | (139,095) | (2.9) | % | (152,211) | (3.4) | % | 13,116 | NM | |||||||||||||||||||||||||||
| Operating income (loss) | $ | 659,475 | 13.9 | % | $ | (153,911) | (3.5) | % | $ | 813,386 | NM | ||||||||||||||||||||||||
| Operating margin(2): | |||||||||||||||||||||||||||||||||||
| Merchant Solutions | 32.2 | % | 32.1 | % | 0.1 | % | |||||||||||||||||||||||||||||
| Issuer Solutions | 15.4 | % | 13.4 | % | 2.0 | % | |||||||||||||||||||||||||||||
| Consumer Solutions | (2.1) | % | 13.5 | % | (15.6) | % |
NM = Not meaningful
(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, consolidated operating expenses, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates and the effects of divested businesses through the respective disposal dates. See “Note 2—Acquisition” and “Note 3—Business Dispositions” for further discussion.
(3) Operating loss for Corporate included acquisition and integration expenses of $148.0 million and $109.5 million for the six months ended June 30, 2023 and 2022, respectively.
Revenues
Consolidated revenues for the three and six months ended June 30, 2023 increased by 7.5% and 6.9%, respectively, to $2,452.5 million and $4,744.9 million, respectively, compared to $2,280.9 million and $4,437.2 million, respectively, for the prior year. The increase in revenues was primarily due to an increase in transaction volumes and revenues from the recently acquired EVO business.
Merchant Solutions Segment. Revenues from our Merchant Solutions segment for the three and six months ended June 30, 2023 increased by 16.5% and 12.9%, respectively, to $1,842.3 million and $3,447.9 million, respectively, compared to $1,581.7 million and $3,054.7 million, respectively, for the prior year. The increase in revenues was primarily due to an increase in transaction volumes and growth in subscription and software revenue, and revenues from the recently acquired EVO business.
Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the three and six months ended June 30, 2023 increased by 5.5% and 5.9%, respectively, to $590.4 million and $1,161.3 million, respectively, compared to $559.6 million and $1,097.0 million, respectively, for the prior year. The increase in revenues was primarily due to an increase in transaction volumes.
Consumer Solutions Segment. Revenues from our Consumer Solutions segment for the three and six months ended June 30, 2023 were $39.0 million and $182.7 million, respectively, compared to $161.6 million and $330.7 million, respectively, for the prior year. Revenues for the three and six months ended June 30, 2023 reflect the results through the disposal date.
Operating Expenses
Cost of Service. Cost of service for the three and six months ended June 30, 2023 was $942.0 million and $1,889.7 million, respectively, compared to $962.3 million and $1,919.5 million, respectively, for the prior year. Cost of service as a percentage of revenues decreased to 38.4% and 39.8%, respectively, for the three and six months ended June 30, 2023 compared to 42.2% and 43.3%, respectively, for the prior year. Compared to the prior year, cost of service for the three and six months ended June 30, 2023 decreased primarily due to prudent expense management and inclusion of costs related to the divested businesses for only a portion of the current year, partially offset by effect of the recently acquired EVO business. Cost of service included amortization of acquired intangibles of $344.4 million and $327.4 million for the three months ended June 30, 2023 and 2022, respectively, and $645.7 million and $656.4 million for the six months ended June 30, 2023 and 2022, respectively. Amortization of acquired intangibles for the three months ended June 30, 2023 increased as a result of the recently acquired EVO business, and amortization of acquired intangibles for the six months ended June 30, 2023 included the favorable effects of lower amortization of acquired intangibles of the divested consumer and gaming business assets.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and six months ended June 30, 2023 increased by 17.4% and 22.0%, respectively, to $1,013.5 million and $2,056.6 million, respectively, compared to $863.2 million and $1,686.3 million, respectively, for the prior year. Selling, general and administrative expenses as a percentage of revenues was 41.3% and 43.3% for the three and six months ended June 30, 2023, respectively, compared to 37.8% and 38.0%, respectively, for the prior year. The increase in selling, general and administrative expenses was primarily due to increases in variable selling and other costs related to the increase in revenues, including due to the recently acquired EVO business, acquisition and integration expenses related primarily to the acquisition of EVO, higher compensation and benefits costs, including an increase in share-based compensation expense for retirement eligible executives and our previous CEO, whose departure was announced on May 1, 2023, and other costs related to the sale of the consumer business. Selling, general and administrative expenses included acquisition and integration expenses of $67.5 million and $61.8 million for the three months ended June 30, 2023 and 2022, respectively, and $168.9 million and $112.9 million for the six months ended June 30, 2023 and 2022, respectively.
Corporate. Corporate expenses for the three and six months ended June 30, 2023 were $204.1 million and $486.8 million, respectively, compared to $179.4 million and $339.7 million, respectively, for the prior year. The increase for the three and six months ended June 30, 2023 compared to the prior year was primarily due to the increase in acquisition and integration and compensation expenses as described above. Corporate expenses included acquisition and integration expenses of $60.2 million and $148.0 million for the three and six months ended June 30, 2023, respectively, compared to $61.4 million and $109.5 million for the three and six months ended June 30, 2022, respectively.
Operating Income and Operating Margin
Consolidated operating income for the three and six months ended June 30, 2023 was $602.7 million and $659.5 million, respectively, compared to $529.9 million and $153.9 million, respectively, for the prior year. Operating margin for the three and six months ended June 30, 2023 was 24.6% and 13.9%, respectively, compared to negative margins for the prior year. Consolidated operating income and operating margin for the three and six months ended June 30, 2023 compared to the prior year included the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and a $104.1 million gain on sale of the gaming business, partially offset by higher acquisition and integration and compensation expenses as described above. Consolidated operating income for the six months ended June 30, 2023 also included the effects of the net loss of $243.2 million on the consumer business disposition, to reduce the carrying amount of the disposal group to estimated fair value less costs to sell, including the effects of incremental negotiated closing adjustments, changes in the estimated fair value of the seller financing and the effects of the final tax structure of the transaction. The gain (loss) on the sale of the gaming and consumer businesses is presented within gain (loss) on business dispositions in our consolidated statement of income.
Consolidated operating loss and negative operating margin for the three and six months ended June 30, 2022 included the effects of the $127.2 million loss on the sale of our Merchant Solutions business in Russia and the $833.1 million goodwill impairment charge related to our former Business and Consumer Solutions reporting unit. We also recognized a charge of $25.0 million during the three months ended June 30, 2022 to reduce the disposal group to estimated fair value less costs to sell, which is presented within net loss on business dispositions in our consolidated statement of income.
Segment Operating Income and Operating Margin
In our Merchant Solutions segment, operating income for the three and six months ended June 30, 2023 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management. These favorable effects were partially offset by incremental expenses related to continued investment in new product, innovation and our technology environments. In addition, the inclusion of the recently acquired operations of EVO had an unfavorable effect on the Merchant Solutions operating margin for the three and six months ended June 30, 2023 as compared to the prior year. In our Issuer Solutions segment, operating income and operating margin for the three and six months ended June 30, 2023 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management.
Other Income/Expense, Net
Interest and other income for the three and six months ended June 30, 2023 increased to $27.9 million and $39.1 million, respectively, compared to $3.0 million and $4.7 million, respectively, for the prior year, primarily due to the interest income associated with the new seller financing notes receivable.
Interest and other expense for the three and six months ended June 30, 2023 increased to $191.4 million and $314.4 million, respectively, compared to $99.2 million and $192.5 million, respectively, for the prior year as a result of the increase in our average outstanding borrowings, higher average interest rates on outstanding borrowings and a noncash charge of $18.2 million for the estimated future credit losses on the new seller financing notes receivable at the inception dates.
Income Tax Expense
For the three and six months ended June 30, 2023, we reported a tax expense of 39.2% and 36.7%, respectively, of the reported income before taxes. During the three and six months ended June 30, 2023, we recognized a gain on the dispositions of our consumer and gaming businesses for income tax reporting purposes, while a net loss on the dispositions was recognized for financial reporting purposes. These effects were partially offset by a higher benefit from foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022.
For the three and six months ended June 30, 2022, we incurred income tax expense in spite of reporting a loss before income taxes. We recognized no tax benefit for the goodwill impairment charge and the loss on the sale of our Merchant Solutions business in Russia. The effective tax rate for the six months ended June 30, 2021 included the favorable effect of a change in the assessment of the need for a valuation allowance related to foreign tax credit carryforwards that did not recur in the current year.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law, which, among other things, implemented a 15% corporate alternative minimum tax based on global adjusted financial statement income and a 1% excise tax on share repurchases effective beginning January 1, 2023. We do not expect the corporate alternative minimum tax will have a material effect on our reported results, cash flows or financial position. During the three and six months ended June 30, 2023, we reflected excise taxes of $2.0 million and $4.3 million, respectively, within equity as part of the price of common stock repurchased during the period.
Net Income (Loss) Attributable to Global Payments
Net income attributable to Global Payments was $274.1 million and $263.1 million, respectively, for the three and six months ended June 30, 2023 compared to net loss of $673.0 million and $428.3 million, respectively, for the prior year, reflecting the changes in operating income noted above.
Diluted Earnings (Loss) per Share
Diluted earnings per share was $1.05 and $1.00, respectively, for the three and six months ended June 30, 2023 compared to diluted loss per share of $2.42 and $1.53, respectively, for the prior year. Diluted earnings per share for the three and six months ended June 30, 2023 reflects the changes in net income.
Liquidity and Capital Resources
We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing. In the ordinary course of our business, a significant portion of our liquidity comes from operating cash flows and borrowings, including the capacity under our revolving credit facility.
Our capital allocation priorities are to make planned capital investments in our business, to pursue acquisitions that meet our corporate objectives, to pay dividends, to pay principal and interest on our outstanding debt and to repurchase shares of our common stock. Our significant contractual cash requirements also include ongoing payments for lease liabilities and contractual obligations related to service arrangements with suppliers for fixed or minimum amounts, which primarily relate to software, technology infrastructure and related services. Commitments under our borrowing arrangements are further described in "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." For additional information regarding our other cash commitments and contractual obligations, see "Note 7—Leases" and “Note 18—Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Our capital plan objectives are to support our operational needs and strategic plan for long-term growth while optimizing our cost of capital and financial position. To supplement cash from operating activities, we use a combination of bank financing, such as borrowings under our credit facilities, commercial paper program and senior note issuances, for general corporate purposes and to fund acquisitions. Our commercial paper program, established during the first quarter of 2023, provides a cost effective means of satisfying our short-term liquidity needs and is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. Finally, specialized lines of credit are also used in certain of our markets to fund merchant settlement prior to receipt of funds from the card networks.
We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future through the issuance of debt or equity or by other means. Accumulated cash balances are invested in high-quality, marketable short-term instruments. We believe that our current and projected sources of liquidity will be sufficient to meet our projected liquidity requirements associated with our operations for the near and long term.
At June 30, 2023, we had cash and cash equivalents totaling $1,919.6 million. Of this amount, we considered $683.5 million to be available for general purposes, of which $62.4 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States. The available cash of $683.5 million does not include the following: (i) settlement-related cash balances, (ii) funds held as collateral for merchant losses ("Merchant Reserves") and (iii) funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted in their use; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. Merchant Reserves serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant's agreement. While this cash is not restricted in its use, we believe that designating this cash as a Merchant Reserve strengthens our fiduciary standing with our member sponsors. Funds held for customers, which are not restricted in their use, include amounts collected before the corresponding obligation is due to be settled to or at the direction of our customers.
We also had restricted cash of $193.3 million as of June 30, 2023, representing amounts deposited by customers for prepaid card transactions and funds held as a liquidity reserve. These balances are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use.
Operating activities provided net cash of $1,164.5 million and $1,198.1 million for the six months ended June 30, 2023 and 2022, respectively, which reflect net income adjusted for noncash items, including depreciation, amortization and the provision for credit losses, charges associated with the net loss on business dispositions and facility exit charges, and changes in operating assets and liabilities. The decrease in cash flows from operating activities from the prior year was due to fluctuations in operating results and related assets and liabilities that are affected primarily by timing of month-end and transaction volume, including changes in settlement processing assets and obligations and accounts payable and other liabilities balances.
We used net cash in investing activities of $4,001.5 million and $363.7 million during the six months ended June 30, 2023 and 2022, respectively. Cash used for investing activities primarily represents cash used to fund acquisitions, net of cash and restricted cash acquired, and capital expenditures. During the six months ended June 30, 2023 and 2022, we used cash of $4,101.4 million and $9.9 million, respectively, for acquisitions. We made capital expenditures of $331.0 million and $324.0 million during the six months ended June 30, 2023 and 2022, respectively. These investments include software and hardware to support the development of new technologies, infrastructure to support our growing business and the consolidation and enhancement of our operating platforms. These investments also include new product development and innovation to further enhance and differentiate our suite of technology and cloud-based solutions available to customers. We expect to continue to make significant capital investments in the business, and we anticipate capital expenditures to grow at a similar rate as our revenue growth for the year ending December 31, 2023. Additionally, investing cash flows for the six months ended June 30, 2023 includes the net effect on cash from the sale of our consumer and gaming businesses and the issuance of a $50 million secured revolving credit facility available from the date of the sale to the purchasers of the consumer business. Investing cash flows for the six months ended June 30, 2022 includes the net effect on cash from the sale of our Merchant Solutions business in Russia.
Financing activities include borrowings and repayments under our various debt arrangements, as well as borrowings and repayments made under specialized lines of credit to fund daily settlement activities. Our borrowing arrangements are further described in "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, cash distributions made to our shareholders and cash contributions from and distributions to noncontrolling interests. Financing activities provided net cash of $2,701.3 million during the six months ended June 30, 2023, and we used net cash in financing activities of $742.7 million during the six months ended June 30, 2022.
Proceeds from long-term debt were $7,359.2 million and $2,954.2 million for the six months ended June 30, 2023 and 2022, respectively. Repayments of long-term debt were $5,673.7 million and $2,276.5 million for the six months ended June 30, 2023 and 2022, respectively. Proceeds from and repayments of long-term debt consist of borrowings and repayments that we make with available cash, from time-to-time, under our revolving credit facility, as well as scheduled principal repayments we make on our term loans, finance leases and other vendor financing arrangements. During the six months ended June 30, 2023, we also had net borrowings of $1,841.7 million under our commercial paper program. See section "Long-Term Debt and Lines of Credit" below for further discussion of our recent debt transactions.
Activity under our settlement lines of credit is affected primarily by timing of month-end and transaction volume. During the six months ended June 30, 2023, we had net repayments of settlement lines of credit of $233.1 million. During the six months ended June 30, 2022, we had net borrowings from settlement lines of credit of $4.1 million.
We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase programs. During the six months ended June 30, 2023 and 2022, we used $414.0 million and $1,250.0 million, respectively, to repurchase shares of our common stock. As of June 30, 2023, the remaining amount available under our share repurchase program was $1,090.2 million.
We paid dividends to our common shareholders in the amounts of $130.6 million and $139.3 million during the six months ended June 30, 2023 and 2022, respectively. We made distributions to noncontrolling interests in the amount of $17.3 million and $14.4 million during the six months ended June 30, 2023 and 2022, respectively.
Long-Term Debt and Lines of Credit
Senior Notes
We have $10.8 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging from November 2024 to August 2052. Interest on the senior notes is payable annually or semi-annually at various dates. Each series of the senior notes is redeemable, at our option, in whole or in part, at any time and from time-to-time at the redemption prices set forth in the related indenture.
On March 17, 2023, we issued €800 million aggregate principal amount of 4.875% senior unsecured notes due March 2031 and received net proceeds of €790.6 million, or $843.6 million based on the exchange rate on the issuance date. We issued the senior notes at a discount of $2.8 million, and we incurred debt issuance costs of $7.2 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at June 30, 2023. Interest on the senior unsecured notes is payable annually in arrears on March 17 of each year, commencing March 17, 2024. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. The net proceeds from the offering were used for general corporate purposes.
During the three months ended June 30, 2023, we used borrowings under the revolving credit facility to fund the redemption in full of the 3.750% and 4.000% senior unsecured notes due June 1, 2023.
Convertible Notes
We have $1.5 billion in aggregate principal amount of 1.000% convertible notes due 2029, which were issued during 2022 in a private placement pursuant to an investment agreement with Silver Lake Partners.
The convertible notes bear interest at a rate of 1.000% per annum. Interest on the convertible notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2023, to the holders of record on the preceding February 1 and August 1, respectively. The convertible notes mature on August 15, 2029, subject to earlier conversion or repurchase.
Revolving Credit Facility
Our revolving credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents, provides for an unsubordinated unsecured $5.75 billion revolving credit facility that matures in August 2027.
We may issue standby letters of credit of up to $250.0 million in the aggregate under the revolving credit facility. Outstanding letters of credit under the revolving credit facility reduce the amount of borrowings available to us. The amounts available to borrow under the revolving credit facility are also determined by a financial leverage covenant. As of June 30,
2023, there were borrowings of $1,981.7 million outstanding under the revolving credit facility, and the total available commitments under the revolving credit facility were $1.9 billion.
Commercial Paper
In January 2023, we established a $2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue. The program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. As such, we could draw on the revolving credit facility to repay commercial paper notes that cannot be rolled over or refinanced with similar debt.
Commercial paper notes are expected to be issued at a discount from par, or they may bear interest, each at commercial paper market rates dictated by market conditions at the time of their issuance. The proceeds from issuances of commercial paper notes will be used primarily for general corporate purposes but may also be used for acquisitions, to pay dividends, for debt refinancing or for other purposes.
As of June 30, 2023, we had borrowings under our commercial paper program of $1,841.7 million outstanding with a weighted average annual interest rate of 5.96%.
Compliance with Covenants
The convertible notes include customary covenants and events of default for convertible notes of this type. The revolving credit agreement contains customary affirmative covenants and restrictive covenants, including, among others, financial covenants based on net leverage and interest coverage ratios, and customary events of default. The required leverage ratio was increased to 4.50 to 1.00 as a result of the qualifying acquisition of EVO, which will remain in effect for up to eight consecutive quarters with a gradual step-down to 3.75 to 1.00, and the required interest coverage ratio is 3.00 to 1.00. We were in compliance with all applicable covenants as of June 30, 2023.
Settlement Lines of Credit
In various markets where we do business, we have specialized lines of credit that are restricted for use in funding settlement. The settlement lines of credit generally have variable interest rates, are subject to annual review and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. For certain of our lines of credit, the available credit is increased by the amount of cash we have on deposit in specific accounts with the lender. Accordingly, the amount of the outstanding lines of credit may exceed the stated credit limit. As of June 30, 2023, a total of $89.2 million of cash on deposit was used to determine the available credit.
As of June 30, 2023, we had $529.0 million outstanding under these lines of credit with additional capacity to fund settlement of $1.7 billion. During the three months ended June 30, 2023, the maximum and average outstanding balances under these lines of credit were $1,128.7 million and $505.8 million, respectively. The weighted-average interest rate on these borrowings was 6.33% at June 30, 2023.
See "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements for further information about our borrowing agreements.
Update to Critical Accounting Estimates
Redeemable noncontrolling interests - Redeemable noncontrolling interests in our subsidiaries in Poland, Greece, and Chile relate to the portion of equity in each of those subsidiaries not attributable, directly or indirectly, to us, which is redeemable upon the occurrence of an event that is not solely within our control. The redeemable noncontrolling interest for each subsidiary is reflected at the higher of: (i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of comprehensive income (loss), capital contributions and distributions or (ii) the redemption price. Estimates of redemption price are based on projected operating performance of each subsidiary, including key assumptions - revenue growth rates, current and expected market conditions and weighted-average cost of capital. Refer to “Note 9—Redeemable Noncontrolling Interests” in the notes to the accompanying unaudited consolidated financial statements for further information.
Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted
From time-to-time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standards setting bodies that may affect our current and/or future financial statements. There were no new recently adopted accounting pronouncements during the period or recently issued accounting pronouncements not yet adopted as of June 30, 2023.
Forward-Looking Statements
Some of the statements we use in this report, and in some of the documents we incorporate by reference in this report, contain forward-looking statements concerning our business operations, economic performance and financial condition, including in particular: our business strategy and means to implement the strategy; measures of future results of operations, such as revenues, expenses, operating margins, income tax rates, and earnings per share; other operating metrics such as capital expenditures; the effects of economic conditions on our business; statements about the benefits of our acquisitions or divestitures, including future financial and operating results, the company’s plans, objectives, expectations and intentions, and the successful integration of our acquisitions or completion of anticipated benefits or strategic initiatives; and our success and timing in developing and introducing new services and expanding our business. You can sometimes identify forward-looking statements by our use of the words "believes," "anticipates," "expects," "intends," "plan," "forecast," "guidance" and similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Although we believe that the plans and expectations reflected in or suggested by our forward-looking statements are reasonable, those statements are based on a number of assumptions, estimates, projections or plans that are inherently subject to significant risks, uncertainties and contingencies, many of which are beyond our control, cannot be foreseen and reflect future business decisions that are subject to change. Accordingly, we cannot guarantee that our plans and expectations will be achieved. Our actual revenues, revenue growth rates and margins, other results of operations and shareholder values could differ materially from those anticipated in our forward-looking statements as a result of many known and unknown factors, many of which are beyond our ability to predict or control. Important factors, among others, that may otherwise cause actual events or results to differ materially from those anticipated by such forward-looking statements or historical performance include the effects of global economic, political, market, health and social events or other conditions; foreign currency exchange, continuing inflation and rising interest rate risks; difficulties, delays and higher than anticipated costs related to integrating the businesses of acquired companies, including with respect to implementing controls to prevent a material security breach of any internal systems or to successfully manage credit and fraud risks in business units; the effect of a security breach or operational failure on the Company's business; failing to comply with the applicable requirements of Visa, Mastercard or other payment networks or card schemes or changes in those requirements; the ability to maintain Visa and Mastercard registration and financial institution sponsorship; the ability to retain, develop and hire key personnel; the diversion of management’s attention from ongoing business operations; the continued availability of capital and financing; increased competition in the markets in which we operate and our ability to increase our market share in existing markets and expand into new markets; our ability to safeguard our data; risks associated with our indebtedness; our ability to meet environmental, social and governance targets, goals and commitments; the potential effects of climate change, including natural disasters; the effects of new or changes in current laws, regulations, credit card association rules or other industry standards on us or our partners and customers, including privacy and cybersecurity laws and regulations; and other events beyond our control, and other factors presented in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent filings we make with the SEC, which we advise you to review.
These cautionary statements qualify all of our forward-looking statements, and you are cautioned not to place undue reliance on these forward-looking statements. 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. While we may elect to update or revise forward-looking statements at some time in the future, we specifically disclaim any obligation to publicly release the results of any revisions to our forward-looking statements, except as required by law.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in our Annual Report on Form 10-K for the year ended December 31, 2022.
With respect to foreign currency exchange rate risk, during the six months ended June 30, 2023, we designated our Euro-denominated senior notes of €800 million as a hedge of our net investment in our Euro-denominated operations. The purpose of the net investment hedge is to offset the volatility of our net investment in our Euro-denominated operations due to changes in foreign currency exchange rates.
With respect to interest rate risk, in March 2023, we entered into interest rate swap agreements with an aggregate notional amount of $1.5 billion to convert eligible borrowings under our revolving credit facility from a floating term Secured Overnight Financing Rate to a fixed rate, which reduces our exposure to fluctuations in interest rates.
See "Note 7—Derivatives and Hedging Instruments" in the notes to the accompanying unaudited consolidated financial statements for further information about our hedging arrangements.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2023, management carried out, under the supervision and with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
We completed our acquisition of EVO on March 24, 2023. In accordance with our integration efforts, we plan to incorporate EVO's operations into our internal control over financial reporting program within the time provided by the applicable rules and regulations of the U.S. Securities and Exchange Commission.
PART II—OTHER INFORMATION
ITEM 1—LEGAL PROCEEDINGS
We are party to a number of claims and lawsuits incidental to our business. In our opinion, the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on our financial position, liquidity, results of operations or cash flows. See "Note 16—Commitments and Contingencies" in the notes to the accompanying unaudited consolidated financial statements for information about certain legal matters.
Item 1A. RISK FACTORS
For a discussion of our risk factors, see Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 and Part II, Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Information about the shares of our common stock that we repurchased during the quarter ended June 30, 2023 is set forth below:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| April 1-30, 2023 | 901,486 | $ | 107.01 | 887,385 | $ | — | |||||||||||||||||
| May 1-31, 2023 | 670,638 | 98.07 | 668,041 | — | |||||||||||||||||||
| June 1-30, 2023 | 496,122 | 99.82 | 450,590 | — | |||||||||||||||||||
| Total | 2,068,246 | $ | 103.35 | 2,006,016 | $ | 1,090.2 |
(1)Our board of directors has authorized us to repurchase shares of our common stock through any combination of Rule 10b5-1 open-market repurchase plans, accelerated share repurchase plans, discretionary open-market purchases or privately negotiated transactions. During the quarter ended June 30, 2023, pursuant to our employee incentive plans, we withheld 62,230 shares, at an average price per share of $100.70, in order to satisfy employees' tax withholding and payment obligations in connection with the vesting of awards of restricted stock.
(2)As of June 30, 2023, the remaining amount available under our share repurchase program was $1,090.2 million. The authorizations by our board of directors do not expire but could be revoked at any time. In addition, we are not required by the board’s authorization or otherwise to complete any repurchases by any specific time or at all.
Item 5. OTHER INFORMATION
(c) Director and Officer Trading Plans and Arrangements
During the quarter ended June 30, 2023, none of our directors or officers notified us that they adopted, modified or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement as defined in Item 408(a) of Regulation S-K.
Item 6. EXHIBITS
List of Exhibits
| * | Filed herewith. | |||||||
| † | Pursuant to Item 601(b)(2) of Regulation S-K, certain schedules have been omitted. The registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Global Payments Inc. | |||||||||||
| (Registrant) | |||||||||||
| Date: August 1, 2023 | /s/ Joshua J. Whipple | ||||||||||
| Joshua J. Whipple | |||||||||||
| Senior Executive Vice President and Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||