Global Payments Inc. (NYSE:GPN) today announced results for the
fourth quarter and year ended December 31, 2017.
"We finished 2017 the way we started it: We generated double
digit organic growth across our markets in the fourth quarter. 2017
was a terrific year by any measure, and we delivered the fastest
rates of organic adjusted net revenue growth, margin enhancement
and adjusted earnings per share growth in our history,” said Jeff
Sloan, Chief Executive Officer. “We also furthered our strategic
objectives to expand our presence in faster growth markets with our
agreement today to create a new joint venture with HSBC in
Mexico.
“The combination of our technology-enabled distribution with the
continuing expansion of our faster growth geographic markets
positions us well to continue our exceptional track record of
market leading growth,” Sloan continued. “Finally, we are pleased
to raise our growth targets in light of the progress we have made
in evolving our business mix over the last several years."
Full-Year 2017 Summary
- GAAP revenues were $3.98 billion,
compared to $3.37 billion in 2016; diluted earnings per share were
$3.01 compared to $1.37 in the prior year; and operating margin was
14.1% compared to 10.6% in 2016.
- Adjusted net revenue grew 24% to $3.52
billion, compared to $2.84 billion in 2016.
- Adjusted earnings per share grew 26% to
$4.01, compared to $3.19 in 2016.
- Adjusted operating margin expanded 120
basis points to 29.9%.
Fourth Quarter 2017 Summary
- GAAP revenues were $1,054.3 million,
compared to $950.2 million in the fourth quarter of 2016; diluted
earnings per share were $1.51 compared to $0.16 in the prior year;
and operating margin was 14.2% compared to 8.4% in the fourth
quarter of 2016.
- Adjusted net revenue grew 15% to $939.0
million, compared to $819.7 million in the fourth quarter of
2016.
- Adjusted earnings per share grew 23% to
$1.07, compared to $0.87 in the fourth quarter of 2016.
- Adjusted operating margin expanded 170
basis points to 30.3%.
ASC 606
Global Payments will adopt Accounting Standards Codification
Topic 606, Revenue from Contracts with Customers (“ASC 606”),
effective January 1, 2018. Under ASC 606, GAAP revenues will now be
reported net of fees paid to payment networks rather than on a
gross basis with these amounts being reflected as a cost of service
as they have been historically. In addition, GAAP revenues
associated with our gaming cash advance products will now be
reported net of associated commissions paid to casinos. These
changes in presentation reduce revenues and operating expenses by
the same amount and have no effect on operating income or earnings
per share.
In addition to reporting GAAP results on this basis going
forward, we will also report an adjusted net revenue plus network
fees metric, which we believe better reflects how we manage our
business and is largely consistent with our historical non-GAAP
adjusted net revenue reporting convention, except with respect to
the netting of gaming cash advance commissions. The netting of
casino commissions reduces 2017 reported amounts by approximately
$68 million and is expected to impact 2018 by an estimated $73
million. In addition, we will report adjusted operating margin
based on the adjusted net revenue plus network fees metric, which
again is largely consistent with our historical reporting
convention.
2018 Outlook
“We could not be more pleased with our strong financial
performance for 2017, and we remain excited about the momentum we
have entering 2018,” stated Cameron Bready, Senior Executive Vice
President and Chief Financial Officer. “As a result of this
performance, for 2018 the company expects adjusted net revenue plus
network fees to range from $3.88 billion to $3.97 billion,
reflecting growth of 12% to 15% over comparable 2017 results and
adjusted earnings per share to be in a range of $4.95 to $5.15,
reflecting growth of 23% to 28% over 2017. Annual adjusted
operating margin for 2018 is expected to expand by up to 110 basis
points over comparable 2017 adjusted operating margin of
30.4%.”
Capital Allocation
Global Payments’ Board of Directors approved a dividend of $0.01
per share payable March 30, 2018 to shareholders of record as of
March 16, 2018. The board also approved an increase to the
company’s existing share repurchase program authorization, raising
the total available authorization to $600 million.
Conference Call
Global Payments’ management will host a conference call today,
February 15, 2018 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, and other measures, 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 or fully
realizing cost savings and other benefits of our 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 1
GAAP CONSOLIDATED STATEMENTS OF
INCOME1
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended December 31,
Year Ended December 31, 2017 2016
%Change
2017 2016
%Change
Revenues $ 1,054,253 $ 950,187 11.0 % $ 3,975,163 $
3,370,976 17.9 % Operating expenses: Cost of service 509,069
478,491 6.4 % 1,928,037 1,603,532 20.2 % Selling, general and
administrative 395,609 391,470 1.1 % 1,488,258
1,411,096 5.5 % 904,678 869,961 4.0 %
3,416,295 3,014,628 13.3 %
Operating
income 149,575 80,226 86.4 % 558,868
356,348 56.8 % Interest and other income 2,875 1,468
95.8 % 8,662 46,780 (81.5 )% Interest and other expense (44,425 )
(50,875 ) (12.7 )% (174,847 ) (146,156 ) 19.6 % (41,550 ) (49,407 )
(15.9 )% (166,185 ) (99,376 ) 67.2 % Income before income
taxes 108,025 30,819 250.5 % 392,683 256,972 52.8 % Income tax
benefit (provision) 142,280 (2,917 ) NM 101,387
(36,267 ) NM Net income 250,305 27,902 NM 494,070 220,705 NM Less:
Net income attributable to noncontrolling interests, net of income
tax (8,343 ) (3,801 ) 119.5 % (25,645 ) (18,952 ) 35.3 % Net income
attributable to Global Payments $ 241,962 $ 24,101 NM
$ 468,425 $ 201,753 NM Earnings per share
attributable to Global Payments: Basic $ 1.52 $ 0.16 NM $ 3.03 $
1.38 NM Diluted $ 1.51 $ 0.16 NM $ 3.01 $ 1.37 NM
Weighted-average number of shares outstanding: Basic 159,143
152,687 154,652 146,030 Diluted 159,827 153,514 155,528 146,939 1
The statements of income for the three months ended December 31,
2017 and 2016 and the year ended December 31, 2016 are derived from
our unaudited consolidated statements of operations for those
periods. NM - Not Meaningful
SCHEDULE 2
NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended December 31, Year Ended December
31, 2017 2016
%Change
2017 2016
%Change
Adjusted net revenue $ 938,955 $ 819,662 14.6 % $ 3,521,186
$ 2,844,008 23.8 % Adjusted operating income $ 284,072 $
234,109 21.3 % $ 1,051,333 $ 815,859 28.9 % Adjusted net
income attributable to Global Payments $ 171,260 $ 132,835 28.9 % $
623,976 $ 468,570 33.2 % Adjusted diluted earnings per share
attributable to Global Payments $ 1.07 $ 0.87 23.0 % $ 4.01 $ 3.19
25.7 % 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 3
SEGMENT INFORMATION (UNAUDITED)
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended December 31, 2017
2016
% Change
GAAP Non-GAAP1 GAAP Non-GAAP1 GAAP Non-GAAP1
Revenues: North America $ 766,611 $ 687,708 $ 704,366 $
601,309 8.8 % 14.4 % Europe 210,267 173,872 175,857 148,389 19.6 %
17.2 % Asia-Pacific 77,375 77,375 69,964
69,964 10.6 % 10.6 % $ 1,054,253 $ 938,955 $
950,187 $ 819,662 11.0 % 14.6 %
Operating
income: North America $ 112,405 $ 206,218 $ 91,643 $ 174,995
22.7 % 17.8 % Europe 76,375 83,336 60,589 68,278 26.1 % 22.1 %
Asia-Pacific 23,952 26,365 18,443 20,978 29.9 % 25.7 % Corporate
(63,157 ) (31,847 ) (90,449 ) (30,142 ) (30.2 )% 5.7 % $ 149,575
$ 284,072 $ 80,226 $ 234,109 86.4 %
21.3 % Year Ended December 31, 2017 2016 % Change GAAP
Non-GAAP1 GAAP Non-GAAP1 GAAP Non-GAAP1
Revenues: North
America $ 2,929,522 $ 2,595,378 $ 2,475,323 $ 2,036,989 18.3 % 27.4
% Europe 767,524 647,691 655,477 566,843 17.1 % 14.3 % Asia-Pacific
278,117 278,117 240,176 240,176 15.8 %
15.8 % $ 3,975,163 $ 3,521,186 $ 3,370,976 $
2,844,008 17.9 % 23.8 %
Operating income:
North America $ 457,009 $ 780,609 $ 350,291 $ 584,298 30.5 % 33.6 %
Europe 272,769 302,641 232,882 267,891 17.1 % 13.0 % Asia-Pacific
81,273 89,122 58,709 70,000 38.4 % 27.3 % Corporate (252,183 )
(121,039 ) (285,534 ) (106,330 ) (11.7 )% 13.8 % $ 558,868 $
1,051,333 $ 356,348 $ 815,859 56.8 % 28.9 % 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 4
CONSOLIDATED BALANCE SHEETS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except share data)
December 31,2017
December 31,2016
ASSETS Current assets: Cash and cash equivalents $ 1,335,855
$ 1,162,779 Accounts receivable, net of allowances for doubtful
accounts of $1,827 and $1,092, respectively 301,887 275,032
Settlement processing assets 2,459,292 1,546,854 Prepaid expenses
and other current assets 206,545 131,341 Total
current assets 4,303,579 3,116,006 Goodwill 5,703,992 4,807,594
Other intangible assets, net 2,181,707 2,085,292 Property and
equipment, net 588,348 526,370 Deferred income taxes 13,146 15,789
Other noncurrent assets 207,297 113,299 Total assets
$ 12,998,069 $ 10,664,350
LIABILITIES AND
EQUITY Current liabilities: Settlement lines of credit $
635,166 $ 392,072 Current portion of long-term debt 100,308 177,785
Accounts payable and accrued liabilities 1,039,607 804,887
Settlement processing obligations 2,040,509 1,477,212
Total current liabilities 3,815,590 2,851,956 Long-term debt
4,559,408 4,260,827 Deferred income taxes 436,879 676,472 Other
noncurrent liabilities 220,961 95,753 Total
liabilities 9,032,838 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; 159,180,317 issued and outstanding at December
31, 2017 and 152,185,616 issued and outstanding at December 31,
2016
— — Paid-in capital 2,379,774 1,816,278 Retained earnings 1,597,897
1,137,230 Accumulated other comprehensive loss (183,144 ) (322,717
) Total Global Payments shareholders’ equity 3,794,527 2,630,791
Noncontrolling interests 170,704 148,551 Total equity
3,965,231 2,779,342 Total liabilities and equity $
12,998,069 $ 10,664,350
SCHEDULE 5
CONSOLIDATED STATEMENTS OF CASH
FLOWS1
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
Year Ended December 31, 2017 2016
Cash
flows from operating activities: Net income $ 494,070 $ 220,706
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization of property and
equipment 113,273 85,681 Amortization of acquired intangibles
337,878 259,327 Share-based compensation expense 39,095 33,688
Provision for operating losses and bad debts 48,443 37,086
Amortization of capitalized customer acquisition costs 45,098
16,758 Deferred income taxes (250,670 ) (43,184 ) Gain on sale of
investments — (41,150 ) Other, net 44,070 42,273 Changes in
operating assets and liabilities, net of the effects of
acquisitions: Accounts receivable (14,096 ) 6,256 Settlement
processing assets and obligations, net (361,673 ) 61,556 Prepaid
expenses and other assets (46,439 ) (15,609 ) Capitalized customer
acquisition costs (82,988 ) (70,122 ) Accounts payable and other
liabilities 146,327 65,427 Net cash provided by
operating activities 512,388 658,693
Cash flows
from investing activities: Acquisitions, net of cash acquired
(562,688 ) (1,827,144 ) Capital expenditures (181,905 ) (138,886 )
Net proceeds from sale of investments — 37,717 Net proceeds from
sales of property and equipment 37,565 107 Other, net (28,997 )
(1,992 ) Net cash used in investing activities (736,025 )
(1,930,198 )
Cash flows from financing activities: Net
proceeds from (repayments of) settlement lines of credit 221,532
47,639 Proceeds from long-term debt 1,994,324 4,292,040 Repayments
of long-term debt (1,781,541 ) (2,137,579 ) Payment of debt
issuance costs (9,520 ) (67,794 ) Repurchase of common stock
(34,811 ) (233,011 ) Proceeds from stock issued under share-based
compensation plans 10,115 7,461 Common stock repurchased -
share-based compensation plans (31,761 ) (20,586 ) Purchase of
subsidiary shares from noncontrolling interest — — Proceeds from
sale of subsidiary shares to noncontrolling interest — 16,374
Distributions to noncontrolling interests (9,301 ) (17,103 )
Dividends paid (6,732 ) (5,906 ) Net cash provided by (used in)
financing activities 352,305 1,881,535 Effect of
exchange rate changes on cash 44,408 (35,002 ) Increase in cash and
cash equivalents 173,076 575,028 Cash and cash equivalents,
beginning of the period 1,162,779 587,751 Cash and
cash equivalents, end of the period $ 1,335,855 $ 1,162,779
1 The statement of cash flows for the year ended December
31, 2016 is derived from our unaudited consolidated statement of
cash flows for that period.
SCHEDULE 6
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO GAAP MEASURES (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 GLOBAL PAYMENTS INC.
AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended December 31, 2017 GAAP
Net RevenueAdjustment1
EarningsAdjustments2
Income Taxes onAdjustments3
Non-GAAP Revenues $ 1,054,253 $ (115,298 ) $ — $ — $ 938,955
Operating income $ 149,575 $ 5,226 $ 129,271 $ — $ 284,072
Net income attributable to Global Payments $ 241,962 $ 5,226
$ 127,444 $ (203,372 ) $ 171,260 Diluted earnings per share4
$ 1.51 $ 1.07 Three Months Ended December 31, 2016 GAAP
Net RevenueAdjustment1
EarningsAdjustments2
Income Taxes onAdjustments3
Non-GAAP Revenues $ 950,187 $ (130,525 ) $ — $ — $ 819,662
Operating income $ 80,226 $ — $ 153,883 $ — $ 234,109 Net
income attributable to Global Payments $ 24,101 $ — $ 159,962 $
(51,228 ) $ 132,835 Diluted earnings per share4 $ 0.16 $
0.87 1Represents 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 December 31, 2017, includes $5.2 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 December 31, 2017
include $89.5 million and $39.8 million in cost of service and
selling, general and administrative expenses, respectively.
Adjustments to cost of service include amortization of acquired
intangibles of $89.3 million and employee termination costs of $0.2
million. Adjustments to selling, general and administrative
expenses include share-based compensation expense of $8.3 million,
acquisition and integration costs of $25.1 million, $6.0 million of
platform integration costs and employee termination costs of $0.4
million. Earnings adjustments to operating income for the
three months ended December 31, 2016 include $93.5 million and
$60.4 million in cost of service and selling, general and
administrative expenses, respectively. Adjustments to cost of
service represent amortization of acquired intangibles of $86.5
million, litigation-related expenses of $6.8 million and other
adjustments of $0.2 million. Adjustments to selling, general and
administrative expenses include share-based compensation expense of
$7.6 million, acquisition and integration costs of $49.3 million
and other adjustments of $3.5 million, including employee
termination costs. 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 December 31, 2017 reflect the removal of
a $158.7 million income tax benefit recorded in connection with the
U.S. Tax Cuts and Jobs Act of 2017. 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 7
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO GAAP MEASURES (UNAUDITED)
YEARS ENDED DECEMBER 31, 2017 AND 2016 GLOBAL PAYMENTS INC. AND
SUBSIDIARIES
(In thousands, except per share data)
Year Ended December 31, 2017 GAAP
Net RevenueAdjustment1
EarningsAdjustments2
Income Taxes onAdjustments3
Non-GAAP Revenues $ 3,975,163 $ (453,977 ) $ — $ — $
3,521,186 Operating income $ 558,868 $ 7,234 $ 485,231 $ — $
1,051,333 Net income attributable to Global Payments $
468,425 $ 7,234 $ 484,817 $ (336,500 ) $ 623,976 Diluted
earnings per share4 $ 3.01 $ 4.01 Year Ended December 31,
2016 GAAP
Net RevenueAdjustment1
EarningsAdjustments2
Income Taxes onAdjustments3
Non-GAAP Revenues $ 3,370,976 $ (526,968 ) $ — $ — $ 2,844,008
Operating income $ 356,348 $ — $ 459,511 $ — $ 815,859
Net income attributable to Global Payments $ 201,753 $ — $
420,559 $ (153,742 ) $ 468,570 Diluted earnings per share4 $
1.37 $ 3.19 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 year ended December 31, 2017, includes $7.2
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 year ended December 31, 2017 include
reductions of $342.2 million and $143.0 million in cost of service
and selling, general and administrative expenses, respectively.
Adjustments to cost of service include amortization of acquired
intangibles of $340.0 million, employee termination costs of $1.9
million, and acquisition and integration costs of $0.3 million.
Adjustments to selling, general and administrative expenses include
share-based compensation expense of $39.4 million, acquisition and
integration costs of $94.3 million, $6.0 million of platform
integration costs and employee termination costs and other
adjustments of $3.3 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 year ended December 31, 2016 include $269.6 million in cost
of service and $189.9 million in selling, general and
administrative expenses. Adjustments to cost of service represent
amortization of acquired intangibles of $261.5 million and employee
termination costs, litigation-related costs of $6.8 million and
other adjustments of $1.3 million. Adjustments to selling, general
and administrative expenses include share-based compensation
expense of $32.6 million, acquisition and integration costs of
$143.3 million, litigation related costs of $10.2 million and
employee termination costs and other adjustments of $3.8 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 year ended December 31, 2017 reflect the
removal of a $158.7 million income tax benefit recorded in
connection with the U.S. Tax Cuts and Jobs Act of 2017 and other
income tax benefits of $4.1 million. For the year ended December
31, 2016, income taxes on adjustments reflect the removal of a
$10.9 million tax benefit associated with our decision at that time
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 8
RECONCILIATION OF SEGMENT NON-GAAP
FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 2017 AND 2016 GLOBAL PAYMENTS INC.
AND SUBSIDIARIES
(In thousands)
Three Months Ended December 31, 2017 2016 GAAP
Net RevenueAdjustments1
EarningsAdjustments2
Non-GAAP GAAP
Net RevenueAdjustments1
EarningsAdjustments2
Non-GAAP
Revenues: North America $ 766,611 $ (78,903
) $ — $ 687,708 $ 704,366 $ (103,057 ) $ — $ 601,309 Europe 210,267
(36,395 ) — 173,872 175,857 (27,468 ) — 148,389 Asia-Pacific 77,375
— — 77,375 69,964 — —
69,964 $ 1,054,253 $ (115,298 ) $ — $
938,955 $ 950,187 $ (130,525 ) $ — $ 819,662
Operating income: North America $ 112,405 $
5,226 $ 88,587 $ 206,218 $ 91,643 $ — $ 83,352 $ 174,995 Europe
76,375 — 6,961 83,336 60,589 — 7,689 68,278 Asia-Pacific 23,952 —
2,413 26,365 18,443 — 2,535 20,978 Corporate (63,157 ) —
31,310 (31,847 ) (90,449 ) — 60,307 (30,142 )
$ 149,575 $ 5,226 $ 129,271 $ 284,072 $
80,226 $ — $ 153,883 $ 234,109 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 December 31, 2017, includes $5.2 million to eliminate
the effect of acquisition accounting fair value adjustments for
software deferred revenue associated with the ACTIVE Network
transaction. 2Earnings adjustments to operating income for
the three months ended December 31, 2017 include $89.5 million and
$39.8 million in cost of service and selling, general and
administrative expenses, respectively. Adjustments to cost of
service include amortization of acquired intangibles of $89.3
million and employee termination costs of $0.2 million. Adjustments
to selling, general and administrative expenses include share-based
compensation expense of $8.3 million, acquisition and integration
costs of $25.1 million, $6.0 million of platform integration costs
and employee termination costs of $0.4 million. Earnings
adjustments to operating income for the three months ended December
31, 2016 include $93.5 million and $60.4 million in cost of service
and selling, general and administrative expenses, respectively.
Adjustments to cost of service represent amortization of acquired
intangibles of $86.5 million, litigation-related expenses of $6.8
million and other adjustments of $0.2 million. Adjustments to
selling, general and administrative expenses include share-based
compensation expense of $7.6 million, acquisition and integration
costs of $49.3 million and other adjustments of $3.5 million,
including employee termination costs. See "Non-GAAP
Financial Measures" discussion on Schedule 10.
SCHEDULE 9
RECONCILIATION OF SEGMENT NON-GAAP
FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)
YEARS ENDED DECEMBER 31, 2017 AND 2016 GLOBAL PAYMENTS INC. AND
SUBSIDIARIES
(In thousands)
Year Ended December 31, 2017 2016 GAAP
Net RevenueAdjustment1
EarningsAdjustments2
Non-GAAP GAAP
Net RevenueAdjustment1
EarningsAdjustments2
Non-GAAP
Revenues: North America $ 2,929,522 $
(334,144 ) $ — $ 2,595,378 $ 2,475,323 $ (438,334 ) $ — $ 2,036,989
Europe 767,524 (119,833 ) — 647,691 655,477 (88,634 ) — 566,843
Asia-Pacific 278,117 — — 278,117
240,176 — — 240,176 $ 3,975,163
$ (453,977 ) $ — $ 3,521,186 $ 3,370,976 $
(526,968 ) $ — $ 2,844,008
Operating
income: North America $ 457,009 $ 7,234 $ 316,366 $ 780,609 $
350,291 $ — $ 234,007 $ 584,298 Europe 272,769 — 29,872 302,641
232,882 — 35,009 267,891 Asia-Pacific 81,273 — 7,849 89,122 58,709
— 11,291 70,000 Corporate (252,183 ) — 131,144
(121,039 ) (285,534 ) — 179,204 (106,330 ) $ 558,868
$ 7,234 $ 485,231 $ 1,051,333 $ 356,348
$ — $ 459,511 $ 815,859 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 year ended
December 31, 2017, includes $7.2 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 year ended
December 31, 2017 include reductions of $342.2 million and $143.0
million in cost of service and selling, general and administrative
expenses, respectively. Adjustments to cost of service include
amortization of acquired intangibles of $340.0 million, employee
termination costs of $1.9 million, and acquisition and integration
costs of $0.3 million. Adjustments to selling, general and
administrative expenses include share-based compensation expense of
$39.4 million, acquisition and integration costs of $94.3 million,
$6.0 million of platform integration costs and employee termination
costs and other adjustments of $3.3 million. Earnings
adjustments to operating income for the year ended December 31,
2016 include $269.6 million in cost of service and $189.9 million
in selling, general and administrative expenses. Adjustments to
cost of service represent amortization of acquired intangibles of
$261.5 million and employee termination costs, litigation-related
costs of $6.8 and other adjustments of $1.3 million. Adjustments to
selling, general and administrative expenses include share-based
compensation expense of $32.6 million, acquisition and integration
costs of $143.3 million, litigation related costs of $10.2 million
and employee termination costs and other adjustments of $3.8
million. See "Non-GAAP Financial Measures" discussion on
Schedule 10.
SCHEDULE 10
OUTLOOK SUMMARY (UNAUDITED)
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In billions, except per share data)
2017 2018 Outlook % Change
Revenues:
GAAP revenues $ 3.98 $3.29 to $3.38 NM Adjustments1 (0.46 )
(0.26) Adjusted net revenue $ 3.52 $3.03 to
$3.12 NM Gaming cash advance2 $ (0.07 ) $ — Network
fees2 — 0.85 Adjusted net revenue plus network
fees $ 3.45 $3.88 to $3.97 12% to 15%
Earnings Per
Share:
GAAP diluted EPS3 $ 3.01 $3.02 to $3.22 0% to 7%
Acquisition-related amortization expense, share-based compensation
and other items4 1.00 1.93 Adjusted diluted
EPS $ 4.01 $4.95 to $5.15 23% to 28% 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. As a result of the
adoption of Accounting Standards Codification Topic 606, Revenue
from Contracts with Customers ("ASC 606") effective January 1,
2018, no adjustment associated with Global Payment’s European
wholesale business is necessary as GAAP revenues will be presented
net of these payments. The 2018 Outlook adjustment is $0.16 billion
lower as a result of this change. See footnote 2. Amounts
also include adjustments to eliminate the effect of acquisition
accounting fair value adjustments for software deferred revenue
associated with the ACTIVE Network transaction. 2 Global
Payments will adopt ASC 606 effective January 1, 2018. The new
standard changes the presentation of certain amounts that we pay to
third parties and currently present as an operating expense.
Effective January 1, 2018, networks fees are recognized as a
reduction of revenue. This change in presentation of fees paid to
third parties reduces our reported revenues and operating expenses
under GAAP by the same amount and has no effect on operating
income. This adjustment is necessary to present adjusted net
revenue plus network fees for 2018 on a comparable basis to 2017 as
network fees are reflected in GAAP revenues for 2017. ASC
606 also changes the presentation of revenue for our gaming cash
advance solutions such that certain amounts we currently present as
operating expenses will be recognized as a reduction of revenue.
This adjustment to 2017 is necessary to reflect the amounts on a
comparable basis as this change in presentation is reflected in the
outlook for GAAP revenues for 2018. 3The application of ASC
606 also changes the amount and timing of revenue and expenses to
be recognized under certain of our customer arrangements, the
effect of which is reflected in the outlook for GAAP diluted EPS
for 2018. 4 Adjustments to 2017 GAAP diluted EPS include the
ACTIVE Network revenue adjustment described above, acquisition
related amortization expense of $2.19, share-based compensation
expense of $0.25 and net other items of $0.68, including
acquisition-related costs of $0.61. Adjustments to 2017 GAAP
diluted EPS also includes the effect of these adjustments on
noncontrolling interests and income taxes, as applicable. In
addition, these adjustments reflect the removal of income tax
benefit of $1.02 representing the effects of the U.S. Tax Cuts and
Jobs Act of 2017. NM - Not Meaningful
NON-GAAP FINANCIAL
MEASURES
Global Payments supplements revenues, income and EPS information
determined in accordance with U.S. GAAP by providing these
measures, and other 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 and adjusted net revenue plus network fees more closely
reflect the economic benefits to the company's core business and,
in the case of adjusted net revenue, 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 net revenue plus
network fees, adjusted operating income, adjusted operating margin,
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. Beginning in 2018, adjusted operating
margin is derived by dividing adjusted operating income by adjusted
net revenue plus network fees. 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180215005342/en/
Global Payments Inc.Investor contact:Isabel Janci,
770-829-8478investor.relations@globalpay.comorMedia
contact:Amy Corn,
770-829-8755media.relations@globalpay.com
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