GPN Global Payments Inc

Global Payments Inc. (NYSE: GPN) today announced results for the third quarter ended September 30, 2017.

“We delivered another quarter of double digit organic adjusted net revenue growth, underscoring the ongoing successful execution of our technology enabled, software driven strategy,” said Jeff Sloan, Chief Executive Officer. “Our integrated and vertical markets and ecommerce and omnichannel solutions businesses, which now comprise 40% of our adjusted net revenue, provide further opportunities for sustained share gains. Additionally, we are delighted with the pace of revenue cross-sell efforts around the world from our recent acquisitions, which positions us well for future growth.”

Third Quarter 2017 Summary

• GAAP revenues were $1,038.9 million, compared to $951.9 million in the third quarter of 2016; diluted earnings per share were $0.71 compared to $0.36 in the prior year; and operating margin was 16.6% compared to 12.6% in the third quarter of 2016.
• Adjusted net revenue grew 12% to $930.4 million, compared to $828.4 million in the third quarter of 2016.
• Adjusted earnings per share grew 29% to $1.15, compared to $0.89 in the third quarter of 2016.
• Adjusted operating margin expanded 110 basis points to 31.3%.

2017 Outlook

“We are very pleased with our performance in the third quarter and year-to-date period, again delivering results in excess of our targets for the business,” stated Cameron Bready, Senior Executive Vice President and Chief Financial Officer. “As a result of this strong performance and to reflect the impacts of the ACTIVE Network transaction, we are increasing our outlook for 2017. We now expect adjusted net revenue to range from $3.505 billion to $3.53 billion, or growth of 23% to 24% over 2016 and adjusted earnings per share to be in a range of $3.94 to $4.02, reflecting growth of 24% to 26% over 2016. We continue to expect adjusted operating margin to expand by as much as 120 basis points.”

Capital Allocation

Global Payments’ Board of Directors approved a dividend of $0.01 per share payable December 29, 2017 to shareholders of record as of December 15, 2017.

Conference Call

Global Payments’ management will host a conference call today, November 8, 2017 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 those measures on an adjusted basis 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 our 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 more than 10,000 employees worldwide, Global Payments is a member of the S&P 500 with customers and partners in 30 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

This announcement and comments made by Global Payments’ management during the conference call may contain certain forward-looking statements within the meaning of the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including revenue, earnings estimates and management’s expectations regarding future events and developments, are forward-looking statements and are subject to significant risks and uncertainties.

Important factors that may cause actual events or results to differ materially from those anticipated by such forward-looking statements include our ability to safeguard our data; increased competition from larger companies and non-traditional competitors, our ability to update our services in a timely manner; our ability to maintain Visa and MasterCard registration and financial institution sponsorship; our reliance on financial institutions to provide clearing services in connection with our settlement activities; our potential failure to comply with card network requirements; potential systems interruptions or failures; software defects or undetected errors; increased attrition of merchants, referral partners or independent sales organizations; our ability to increase our share of existing markets and expand into new markets; a decline in the use of cards for payment generally; unanticipated increases in chargeback liability; increases in credit card network fees; change in laws, regulations or network rules or interpretations thereof; foreign currency exchange and interest rate risks; political, economic and regulatory changes in the foreign countries in which we operate; future performance, integration and conversion of acquired operations; including without limitation difficulties and delays in integrating the Heartland or ACTIVE Network businesses or fully realizing cost savings and other benefits of the acquisitions at all or within the expected time period; fully realizing anticipated annual interest expense savings from refinancing our corporate debt facilities; our loss of key personnel and other risk factors presented in Item 1- Risk Factors of our Transition Report on Form 10-K for the seven months ended December 31, 2016 and any subsequent SEC filings, which we advise you to review. 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 1UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOMEGLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands, except per share data)

        Three Months Ended     Nine Months Ended September 30 September 30 2017     2016     % Change 2017     2016     % Change   Revenues $ 1,038,907 $ 951,885 9.1 % $ 2,920,910 $ 2,420,789 20.7 %   Operating expenses: Cost of service 493,883 469,980 5.1 % 1,418,969 1,125,041 26.1 % Selling, general and administrative 372,553   361,516   3.1 % 1,092,648   1,019,626   7.2 % 866,436   831,496   4.2 % 2,511,617   2,144,667   17.1 %   Operating income 172,471   120,389   43.3 % 409,293   276,122   48.2 %   Interest and other income 2,347 1,465 60.2 % 5,787 45,312 (87.2 )% Interest and other expense (40,764 ) (45,609 ) (10.6 )% (130,422 ) (95,280 ) 36.9 % (38,417 ) (44,144 ) (13.0 )% (124,635 ) (49,968 ) 149.4 %   Income before income taxes 134,054 76,245 75.8 % 284,658 226,154 25.9 % Provision for income taxes (15,692 ) (14,021 ) 11.9 % (40,893 ) (33,350 ) 22.6 % Net income 118,362 62,224 90.2 % 243,765 192,804 26.4 % Less: Net income attributable to noncontrolling interests, net of income tax (7,622 ) (6,714 ) 13.5 % (17,302 ) (15,150 ) 14.2 % Net income attributable to Global Payments $ 110,740   $ 55,510   99.5 % $ 226,463   $ 177,654   27.5 %   Earnings per share attributable to Global Payments: Basic $ 0.72 $ 0.36 100.0 % $ 1.48 $ 1.24 19.4 % Diluted $ 0.71 $ 0.36 97.2 % $ 1.47 $ 1.23 19.5 %   Weighted-average number of shares outstanding: Basic 154,560 153,668 153,138 143,794 Diluted 155,402 154,530 154,079 144,731            

SCHEDULE 2NON-GAAP FINANCIAL MEASURES (UNAUDITED)GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands, except per share data)

          Three Months Ended   Nine Months Ended September 30 September 30 2017   2016   % Change 2017   2016   % Change   Adjusted net revenue $ 930,411 $ 828,436 12.3 % $ 2,582,231 $ 2,024,346 27.6 %   Adjusted operating income $ 290,773 $ 249,943 16.3 % $ 767,260 $ 581,749 31.9 %   Adjusted net income $ 178,313 $ 137,925 29.3 % $ 452,714 $ 335,736 34.8 %   Adjusted EPS $ 1.15 $ 0.89 29.2 % $ 2.94 $ 2.32 26.7 %  

See Schedules 6 and 7 for a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure and Schedule 10 for a discussion of non-GAAP financial measures.

           

SCHEDULE 3SEGMENT INFORMATION (UNAUDITED)GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands)

          Three Months Ended    

September 30, 2017

 

September 30, 2016

% Change

GAAP

 

Non-GAAP1

GAAP

    Non-GAAP1 GAAP Non-GAAP1   Revenues: North America $ 764,902 $ 685,776 $ 718,977 $ 618,712 6.4 % 10.8 % Europe 205,203 175,833 173,246 150,062 18.4 % 17.2 % Asia-Pacific   68,802     68,802     59,662     59,662   15.3 % 15.3 % $ 1,038,907   $ 930,411   $ 951,885   $ 828,436   9.1 % 12.3 %   Operating income: North America $ 138,345 $ 216,870 $ 110,983 $ 188,197 24.7 % 15.2 % Europe 76,214 83,130 63,727 71,017 19.6 % 17.1 % Asia-Pacific 20,032 22,197 14,657 17,291 36.7 % 28.4 % Corporate  

(62,120

)

 

(31,424

)

 

(68,978

)

  (26,562 ) (9.9 )% 18.3 % $ 172,471   $ 290,773   $ 120,389   $ 249,943   43.3 % 16.3 %     Nine Months Ended September 30, 2017 September 30, 2016 % Change GAAP Non-GAAP1 GAAP Non-GAAP1 GAAP Non-GAAP1   Revenues: North America $ 2,162,911 $ 1,907,670 $ 1,770,957 $ 1,435,680 22.1 % 32.9 % Europe 557,258 473,820 479,620 418,454 16.2 % 13.2 % Asia-Pacific   200,741     200,741     170,212     170,212   17.9 % 17.9 % $ 2,920,910   $ 2,582,231   $ 2,420,789   $ 2,024,346   20.7 % 27.6 %   Operating income: North America $ 344,604 $ 574,391 $ 258,648 $ 409,302 33.2 % 40.3 % Europe 196,394 219,305 172,293 199,612 14.0 % 9.9 % Asia-Pacific 57,321 62,756 40,266 49,021 42.4 % 28.0 % Corporate   (189,026 )   (89,192 )   (195,085 )   (76,186 ) (3.1 )% 17.1 % $ 409,293   $ 767,260   $ 276,122   $ 581,749   48.2 % 31.9 %  

1 See Schedules 8 and 9 for a reconciliation of adjusted net revenue and adjusted operating income by segment to the most comparable GAAP measures and Schedule 10 for a discussion of non-GAAP financial measures.

           

SCHEDULE 4UNAUDITED CONSOLIDATED BALANCE SHEETSGLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands, except share data)

       

September 30,

2017

   

December 31,

2016

  ASSETS Current assets: Cash and cash equivalents $ 1,186,050 $ 1,162,779 Accounts receivable, net of allowances for doubtful accounts of $1,423 and $1,092, respectively 296,366 275,032 Settlement processing assets 1,847,232 1,546,854 Prepaid expenses and other current assets 220,649   131,341   Total current assets 3,550,297 3,116,006 Goodwill 5,616,414 4,807,594 Other intangible assets, net 2,328,709 2,085,292 Property and equipment, net 577,188 526,370 Deferred income taxes 16,736 15,789 Other noncurrent assets 192,205   113,299   Total assets $ 12,281,549   $ 10,664,350     LIABILITIES AND EQUITY Current liabilities: Settlement lines of credit $ 487,513 $ 392,072 Current portion of long-term debt 93,408 177,785 Accounts payable and accrued liabilities 992,363 804,887 Settlement processing obligations 1,550,627   1,477,212   Total current liabilities 3,123,911 2,851,956 Long-term debt 4,677,910 4,260,827 Deferred income taxes 632,648 676,472 Other noncurrent liabilities 152,127   95,753   Total liabilities 8,586,596   7,885,008   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; 158,762,894 issued and outstanding at September 30, 2017 and 152,185,616 issued and outstanding at December 31, 2016 — — Paid-in capital 2,376,331 1,816,278 Retained earnings 1,357,526 1,137,230 Accumulated other comprehensive loss (202,508 ) (322,717 ) Total Global Payments shareholders’ equity 3,531,349 2,630,791 Noncontrolling interests 163,604   148,551   Total equity 3,694,953   2,779,342   Total liabilities and equity $ 12,281,549   $ 10,664,350              

SCHEDULE 5UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSGLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands)

          Nine Months Ended

September 30,

2017

   

September 30,

2016

Cash flows from operating activities: Net income $ 243,765 $ 192,804 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 80,868 62,964 Amortization of acquired intangibles 249,095 173,345 Share-based compensation expense 30,771 26,060 Provision for operating losses and bad debts 37,203 26,069 Amortization of capitalized customer acquisition costs 32,863 9,337 Deferred income taxes (51,093 ) (30,504 ) Gain on sale of investments — (41,150 ) Other, net 34,190 26,790 Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable (6,070 ) 14,216 Settlement processing assets and obligations, net (232,713 ) (109 ) Prepaid expenses and other assets (12,605 ) (27,474 ) Capitalized customer acquisition costs (65,697 ) (45,425 ) Accounts payable and other liabilities 19,546   (19,491 ) Net cash provided by operating activities 360,123   367,432   Cash flows from investing activities: Business acquisitions, net of cash acquired (563,009 ) (1,825,975 ) Capital expenditures (136,612 ) (102,442 ) Proceeds from sale of investments — 37,783 Proceeds from sales of property and equipment 37,520 — Other, net (48,056 ) (1,409 ) Net cash used in investing activities (710,157 ) (1,892,043 ) Cash flows from financing activities: Net proceeds from (repayments of) settlement lines of credit 77,397 (952 ) Proceeds from long-term debt 1,713,324 3,263,045 Repayments of long-term debt (1,386,721 ) (1,110,258 ) Payment of debt issuance costs (9,520 ) (58,448 ) Repurchase of common stock (32,811 ) (130,314 ) Proceeds from stock issued under share-based compensation plans 7,068 5,614 Common stock repurchased - share-based compensation plans (21,171 ) (15,622 ) Proceeds from sale of subsidiary shares to noncontrolling interest — 16,374 Distributions to noncontrolling interests (9,301 ) (10,216 ) Dividends paid (5,141 ) (4,376 ) Net cash provided by financing activities 333,124   1,954,847   Effect of exchange rate changes on cash 40,181   (7,142 ) Increase in cash and cash equivalents 23,271 423,094 Cash and cash equivalents, beginning of the period 1,162,779   587,751   Cash and cash equivalents, end of the period $ 1,186,050   $ 1,010,845              

SCHEDULE 6RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands, except per share data)

      Three Months Ended September 30, 2017 GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

 

Income

Taxes on

Adjustments3

  Non-GAAP Revenues $ 1,038,907 $ (108,496 ) $ — $ — $ 930,411   Operating income $ 172,471 $ 2,008 $ 116,294 $ — $ 290,773   Net income attributable to Global Payments $ 110,740 $ 2,008 $ 114,496 $ (48,931 ) $ 178,313   Diluted earnings per share attributable to Global Payments4 $ 0.71 $ 1.15     Three Months Ended September 30, 2016 GAAP

Net Revenue

Adjustments1

Earnings

Adjustments2

Income

Taxes on

Adjustments3

Non-GAAP Revenues $ 951,885 $ (123,449 ) $ — $ — $ 828,436   Operating income $ 120,389 $ — $ 129,554 $ — $ 249,943   Net income attributable to Global Payments $ 55,510 $ — $ 127,723 $ (45,308 ) $ 137,925   Diluted earnings per share attributable to Global Payments4 $ 0.36 $ 0.89  

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. For the three months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the three months ended September 30, 2017 include $84.9 million in cost of service and $31.4 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $84.5 million, $0.3 million of acquisition and integration costs and employee termination costs of $0.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.9 million, acquisition and integration costs of $21.2 million and employee termination costs of $0.3 million.

 

Earnings adjustments to operating income for the three months ended September 30, 2016 include $87.0 million in cost of service and $42.6 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $86.2 million and employee termination costs and other adjustments of $0.8 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.4 million, acquisition and integration costs of $34.0 million and employee termination costs and other adjustments of $0.2 million.

 

3 Income taxes on adjustments reflect the tax effect of earnings adjustments to income before income taxes. The tax rate used in determining the tax impact of 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. In addition, income taxes on adjustments for the three months ended September 30, 2017 reflect the removal of a $7.7 million tax benefit associated with the vesting of share-based awards.

 

4 Adjusted EPS is calculated by dividing adjusted net income attributable to Global Payments by the diluted weighted-average number of shares outstanding.

 

See “Non-GAAP Financial Measures” discussion on Schedule 10.

           

SCHEDULE 7RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands, except per share data)

      Nine Months Ended September 30, 2017 GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

 

Income

Taxes on

Adjustments3

  Non-GAAP Revenues $ 2,920,910 $ (338,679 ) $ — $ — $ 2,582,231   Operating income $ 409,293 $ 2,008 $ 355,959 $ — $ 767,260   Net income attributable to Global Payments $ 226,463 $ 2,008 $ 357,372 $ (133,129 ) $ 452,714   Diluted earnings per share attributable to Global Payments4 $ 1.47 $ 2.94     Nine Months Ended September 30, 2016 GAAP

Net Revenue

Adjustments1

Earnings

Adjustments2

Income

Taxes on

Adjustments3

Non-GAAP Revenues $ 2,420,789 $ (396,443 ) $ — $ — $ 2,024,346   Operating income $ 276,122 $ — $ 305,627 $ — $ 581,749   Net income attributable to Global Payments $ 177,654 $ — $ 260,596 $ (102,514 ) $ 335,736   Diluted earnings per share attributable to Global Payments4 $ 1.23 $ 2.32  

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. For the nine months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the nine months ended September 30, 2017 include $252.8 million in cost of service and $103.2 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $250.7 million, employee termination costs of $1.8 million and acquisition and integration costs of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $31.1 million, acquisition and integration costs of $69.2 million and employee termination costs of $2.9 million. Net income attributable to Global Payments also reflects an adjustment to remove a non-cash charge of $6.8 million associated with the refinancing of our corporate credit facility.

 

Earnings adjustments to operating income for the nine months ended September 30, 2016 include $176.1 million in cost of service and $129.5 million in selling, general and administrative expenses. Adjustments to cost of service represent amortization of acquired intangibles of $175.0 million and employee termination costs and other adjustments of $1.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $25.0 million, acquisition and integration costs of $94.0 million, litigation related costs of $7.6 million and employee termination costs and other adjustments of $2.9 million. Net income attributable to Global Payments also reflects an adjustment to remove a gain on the sale of membership interests in Visa Europe of $41.2 million.

 

3 Income taxes on adjustments reflect the tax effect of earnings adjustments to income before income taxes. The tax rate used in determining the tax impact of 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. In addition, income taxes on adjustments for the nine months ended September 30, 2017 reflect the removal of a $2.4 million tax benefit associated with the elimination of a deferred tax liability and the removal of a $4.0 million tax benefit associated with the vesting of share-based awards. For the nine months ended September 30, 2016, income taxes on adjustments reflect the removal of a $10.9 million tax benefit associated with our decision to indefinitely reinvest earnings in Canada.

 

4 Adjusted EPS is calculated by dividing adjusted net income attributable to Global Payments by the diluted weighted-average number of shares outstanding.

 

See “Non-GAAP Financial Measures” discussion on Schedule 10.

           

SCHEDULE 8RECONCILIATION OF SEGMENT NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands)

        Three Months Ended September 30, 2017   Three Months Ended September 30, 2016 GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP Revenues: North America $ 764,902 $ (79,126 ) $ — $ 685,776 $ 718,977 $ (100,265 ) $ — $ 618,712 Europe 205,203 (29,370 ) — 175,833 173,246 (23,184 ) — 150,062 Asia-Pacific 68,802   —   —   68,802   59,662   —   —   59,662   $ 1,038,907   $ (108,496 ) $ —   $ 930,411   $ 951,885   $ (123,449 ) $ —   $ 828,436     Operating income: North America $ 138,345 $ 2,008 $ 76,517 $ 216,870 $ 110,983 $ — $ 77,214 $ 188,197 Europe 76,214 — 6,916 83,130 63,727 — 7,290 71,017 Asia-Pacific 20,032 — 2,165 22,197 14,657 — 2,634 17,291 Corporate (62,120 ) —   30,696   (31,424 ) (68,978 ) —   42,416   (26,562 ) $ 172,471   $ 2,008   $ 116,294   $ 290,773   $ 120,389   $ —   $ 129,554   $ 249,943    

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. For the three months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the three months ended September 30, 2017 include $84.9 million in cost of service and $31.4 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $84.5 million, $0.3 million of acquisition and integration costs and employee termination costs of $0.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $9.9 million, acquisition and integration costs of $21.2 million and employee termination costs of $0.3 million.

 

Earnings adjustments to operating income for the three months ended September 30, 2016 include $87.0 million in cost of service and $42.6 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $86.2 million and employee termination costs and other adjustments of $0.8 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.4 million, acquisition and integration costs of $34.0 million and employee termination costs and other adjustments of $0.2 million.

 

See “Non-GAAP Financial Measures” discussion on Schedule 10.

           

SCHEDULE 9RECONCILIATION OF SEGMENT NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In thousands)

        Nine Months Ended September 30, 2017   Nine Months Ended September 30, 2016 GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP GAAP  

Net Revenue

Adjustments1

 

Earnings

Adjustments2

  Non-GAAP Revenues: North America $ 2,162,911 $ (255,241 ) $ — $ 1,907,670 $ 1,770,957 $ (335,277 ) $ — $ 1,435,680 Europe 557,258 (83,438 ) — 473,820 479,620 (61,166 ) — 418,454 Asia-Pacific 200,741   —   —   200,741   170,212   —   —   170,212   $ 2,920,910   $ (338,679 ) $ —   $ 2,582,231   $ 2,420,789   $ (396,443 ) $ —   $ 2,024,346     Operating income: North America $ 344,604 $ 2,008 $ 227,779 $ 574,391 $ 258,648 $ — $ 150,654 $ 409,302 Europe 196,394 — 22,911 219,305 172,293 — 27,319 199,612 Asia-Pacific 57,321 — 5,435 62,756 40,266 — 8,755 49,021 Corporate (189,026 ) —   99,834   (89,192 ) (195,085 ) —   118,899   (76,186 ) $ 409,293   $ 2,008   $ 355,959   $ 767,260   $ 276,122   $ —   $ 305,627   $ 581,749    

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. For the nine months ended September 30, 2017, includes $2.0 million to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Earnings adjustments to operating income for the nine months ended September 30, 2017 include $252.8 million in cost of service and $103.2 million in selling, general and administrative expenses. Adjustments to cost of service include amortization of acquired intangibles of $250.7 million, employee termination costs of $1.8 million and acquisition and integration costs of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $31.1 million, acquisition and integration costs of $69.2 million and employee termination costs of $2.9 million.

 

Earnings adjustments to operating income for the nine months ended September 30, 2016 include $176.1 million in cost of service and $129.5 million in selling, general and administrative expenses. Adjustments to cost of service represent amortization of acquired intangibles of $175.0 million and employee termination costs and other adjustments of $1.1 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $25.0 million, acquisition and integration costs of $94.0 million, litigation related costs of $7.6 million and employee termination costs and other adjustments of $2.9 million.

 

See “Non-GAAP Financial Measures” discussion on Schedule 10.

           

SCHEDULE 10OUTLOOK SUMMARY (UNAUDITED)GLOBAL PAYMENTS INC. AND SUBSIDIARIES(In billions, except per share data)

        2016 Actual   2017 Outlook   % Change Revenues: GAAP revenue $ 3.37 $3.945 to $3.97 17% to 18% Adjustments1   (0.53 ) (0.44 )   Adjusted net revenue $ 2.84   $3.505 to $3.53 23% to 24%   Earnings Per Share ("EPS"): GAAP diluted EPS $ 1.37 $1.97 to $2.05 44% to 50% Acquisition-related amortization expense, share-based compensation expense and other items2   1.82   1.97     Adjusted EPS $ 3.19   $3.94 to $4.02 24% to 26%  

1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. For 2017, includes adjustments to eliminate the effect of acquisition accounting fair value adjustments for software deferred revenue associated with the ACTIVE Network transaction.

 

2 Adjustments to Calendar 2016 GAAP diluted EPS include acquisition related amortization expense of $1.17, share-based compensation expense of $0.14 and net other items of $0.51, including merger-related costs of $0.62, a $0.16 adjustment to remove a gain on the sale of membership interests in Visa Europe and a $0.07 adjustment to remove a tax benefit associated with our decision to indefinitely reinvest earnings in Canada. Adjustments to 2016 GAAP diluted EPS also includes the effect of these adjustments on noncontrolling interests and income taxes, as applicable. For 2017, includes the revenue adjustment described above and adjustments for acquisition-related amortization expense, share-based compensation expense, acquisition and integration costs, employee termination costs and certain income tax benefits.

     

NON-GAAP FINANCIAL MEASURES

Global Payments supplements revenues, income and EPS information determined in accordance with U.S. GAAP by providing these measures with certain adjustments (such measures being non-GAAP financial measures) 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 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, adjusted operating income, adjusted net income and adjusted EPS should be considered in addition to, and not as substitutes for, revenues, operating income, net income and EPS determined in accordance with GAAP. The non-GAAP financial measures 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 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.

Adjusted operating income, adjusted net income and adjusted EPS 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 Schedules 6, 7, 8 and 9. The tax rate used in determining the net income impact of 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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Global Payments Inc.Investor contact:Isabel Janci, 770-829-8478investor.relations@globalpay.comorMedia contact:Amy Corn, 770-829-8755media.relations@globalpay.com