Global Payments Reports Record Annual Results for 2018 and Establishes 2019 Growth Outlook

ATLANTA–(BUSINESS WIRE)–Global Payments Inc. (NYSE: GPN) today announced results for the
fourth quarter and year ended December 31, 2018.

“In 2018, we produced the best financial performance in our history,
culminating with strong momentum across our businesses in the fourth
quarter,” said Jeff Sloan, Chief Executive Officer. “Successful
execution of our strategy has created a more diverse, predictable and
resilient business model entering 2019.

“We believe the advantages of our technology-enabled, software-driven
strategy will continue to differentiate our company, with a balanced
approach across owned SaaS, partnered software and ecommerce and
omnichannel assets,” Sloan continued. “The positive outlook for our
business is reflected in our absolute and relative growth expectations
for 2019.”

Full-Year 2018 Summary

  • GAAP revenues were $3.37 billion, compared to $3.98 billion in 2017;
    diluted earnings per share were $2.84 compared to $3.01 in the prior
    year; and operating margin was 21.9% compared to 14.1% in 2017; 2018
    results reflect the adoption of Accounting Standards Codification
    Topic 606, Revenue from Contracts with Customers.
  • Adjusted net revenue plus network fees grew 15% to $3.97 billion,
    compared to $3.46 billion in 2017.
  • Adjusted earnings per share grew 29% to $5.19, compared to $4.01 in
    2017.
  • Adjusted operating margin expanded 130 basis points to 31.7%.

Fourth Quarter 2018 Summary

  • GAAP revenues were $881 million, compared to $1.05 billion in the
    fourth quarter of 2017; diluted earnings per share were $0.47 compared
    to $1.51 in the prior year; and operating margin was 19.0% compared to
    14.2% in the fourth quarter of 2017; 2018 results reflect the adoption
    of Accounting Standards Codification Topic 606, Revenue from
    Contracts with Customers
    .
  • Adjusted net revenue plus network fees grew over 12% to $1.04 billion,
    compared to $923.7 million in the fourth quarter of 2017.
  • Adjusted earnings per share grew 24% to $1.33, compared to $1.07 in
    the fourth quarter of 2017.
  • Adjusted operating margin expanded 80 basis points to 31.6%.

2019 Outlook

“We are delighted with our performance in the fourth quarter, despite
facing incremental pressure from foreign currency exchange rates, and
the record results we achieved in 2018 as we consistently executed on
our growth strategy,” stated Cameron Bready, Senior Executive Vice
President and Chief Financial Officer. “We could not be more pleased
with how our business is positioned as we enter 2019 and the resulting
financial outlook for the year. The company expects adjusted net revenue
plus network fees to range from $4.43 billion to $4.49 billion,
reflecting growth of 12% to 13% over 2018 results and adjusted earnings
per share to be in a range of $5.90 to $6.10, reflecting growth of 14%
to 18% over 2018. Annual adjusted operating margin for 2019 is expected
to expand by up to 70 basis points.”

Capital Allocation

Global Payments’ Board of Directors approved a dividend of $0.01 per
share payable March 29, 2019 to shareholders of record as of March 15,
2019.

The Board also approved an increase to the existing authorization for
the company’s share repurchase program, raising the total available
authorization to $750 million.

Conference Call

Global Payments’ management will host a conference call today, February
13, 2019 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, operating 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 and software solutions delivering innovative services
to our customers globally. Our technologies, services and employee
expertise enable us to provide a broad range of solutions that allow our
customers to accept all payment types and operate their businesses more
efficiently across a variety of distribution channels in many markets
around the world.

Headquartered in Atlanta, Georgia with approximately 11,000 employees
worldwide, Global Payments is a member of the S&P 500 with customers and
partners in 32 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 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 and other operating metrics; our success
and timing in developing and introducing new services and expanding our
business; statements about the benefits of our acquisitions, including
future financial and operating results, the combined company’s plans,
objectives, expectations and intentions, and the successful integration
of our acquisitions, and other statements that are not historical facts.
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 you 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 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; development of
market trends and technologies; a decline in the use of cards for
payment generally; unanticipated increases in chargeback liability;
increases in credit card network fees; changes 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 Report on Form 10-K for the year ended December 31, 2017 and any
subsequent SEC filings, 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.

 
SCHEDULE 1
GAAP CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

                         
 
Three Months Ended December 31, Year Ended December 31,
2018 2017 % Change 2018 2017 % Change
 
Revenues(1) $ 880,555 $ 1,054,253 (16.5 )% $ 3,366,366 $ 3,975,163 (15.3 )%
 
Operating expenses(1):
Cost of service 313,071 509,069 (38.5 )% 1,095,014 1,928,037 (43.2 )%
Selling, general and administrative 400,498   395,609   1.2 % 1,534,297   1,488,258   3.1 %
713,569   904,678   (21.1 )% 2,629,311   3,416,295   (23.0 )%
 
Operating income 166,986   149,575   11.6 % 737,055   558,868   31.9 %
 
Interest and other income 3,323 2,875 15.6 % 20,719 8,662 139.2 %
Interest and other expense (55,939 ) (44,425 ) 25.9 % (195,619 ) (174,847 ) 11.9 %
(52,616 ) (41,550 ) 26.6 % (174,900 ) (166,185 ) 5.2 %
 
Income before income taxes 114,370 108,025 5.9 % 562,155 392,683 43.2 %
Income tax (provision) benefit (31,047 ) 142,280   NM (77,488 ) 101,387   NM
Net income 83,323 250,305 NM 484,667 494,070 NM

Less: Net income attributable to noncontrolling interests, net of
income tax

(8,109 ) (8,343 ) (2.8 )% (32,614 ) (25,645 ) 27.2 %

Net income attributable to Global Payments

$ 75,214   $ 241,962   NM $ 452,053   $ 468,425   NM
 
Earnings per share attributable to Global Payments:
Basic $ 0.48 $ 1.52 NM $ 2.85 $ 3.03 NM
Diluted $ 0.47 $ 1.51 NM $ 2.84 $ 3.01 NM
 
Weighted-average number of shares outstanding:
Basic 158,213 159,143 158,672 154,652
Diluted 158,711 159,827 159,271 155,528
 

NM – Not Meaningful

 

(1) Global Payments adopted Accounting Standards Codification
Topic 606, Revenue from Contracts with Customers (“ASC 606”) on
January 1, 2018. The new accounting standard changed the presentation of
certain amounts that we pay to third parties, including payment
networks. This change in presentation affected our reported GAAP
revenues and operating expenses by the same amount and had no effect on
operating income. Also, ASC 606 changed the presentation of revenue for
our gaming cash advance solutions and had a de minimis impact on revenue
from our European business. For our gaming cash advance solutions,
certain amounts we previously presented as operating expenses are now
recognized as a reduction of revenue under GAAP. As a result of adopting
ASC 606, results for 2018 and 2017 revenues and operating expenses are
not comparable, thus the changes from the prior year are 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,
2018 2017

%
Change

2018 2017

%
Change

 
Adjusted net revenue plus network fees $ 1,037,617 $ 923,743 12.3 % $ 3,969,376 $ 3,457,144 14.8 %
 
Adjusted operating income $ 328,256 $ 284,072 15.6 % $ 1,256,447 $ 1,051,333 19.5 %
 
Adjusted net income attributable to Global Payments $ 211,551 $ 171,260 23.5 % $ 826,337 $ 623,976 32.4 %
 

Adjusted diluted earnings per share attributable to Global Payments

$ 1.33 $ 1.07 24.3 % $ 5.19 $ 4.01 29.4 %
 

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
2018 2017 % Change
GAAP

Non-
GAAP(1)

Non-GAAP
Adjusted
Net
Revenue
Plus
Network
Fees(1)(2)

GAAP

Non-
GAAP(1)

Non-GAAP
Adjusted
Net
Revenue
Plus
Network
Fees(1)(2)

GAAP(3)

Non-
GAAP(3)

Non-GAAP
Adjusted
Net
Revenue
Plus
Network
Fees(1)(2)

Revenues:
North America $ 662,739 $ 600,805 $ 764,786 $ 766,611 $ 687,708 $ 671,671 NM NM 13.9 %
Europe 154,438 154,438 188,103 210,267 173,872 174,696 NM NM 7.7 %
Asia-Pacific 63,378   63,797   84,728 77,375   77,375   77,376 NM NM 9.5 %
$ 880,555   $ 819,040   $ 1,037,617 $ 1,054,253   $ 938,955   $ 923,743 NM NM 12.3 %
 
Operating income:
North America $ 124,030 $ 247,069 $ 112,405 $ 206,218 10.3 % 19.8 %
Europe 79,381 89,645 76,375 83,336 3.9 % 7.6 %
Asia-Pacific 26,359 29,179 23,952 26,365 10.0 % 10.7 %
Corporate (62,784 ) (37,637 ) (63,157 ) (31,847 ) (0.6 )% 18.2 %
$ 166,986   $ 328,256   $ 149,575   $ 284,072   11.6 % 15.6 %
 
Year Ended December 31
2018 2017 % Change
GAAP

Non-
GAAP(1)

Non-GAAP
Adjusted
Net
Revenue
Plus
Network
Fees(1)(2)

GAAP

Non-
GAAP(1)

Non-GAAP
Adjusted
Net
Revenue
Plus
Network
Fees(1)(2)

GAAP(3)

Non-
GAAP(3)

Non-GAAP
Adjusted
Net
Revenue
Plus
Network
Fees(1)(2)

Revenues:
North America $ 2,522,284 $ 2,252,819 $ 2,915,681 $ 2,929,522 $ 2,595,378 $ 2,527,899 NM NM 15.3 %
Europe 610,930 610,930 742,901 767,524 647,691 651,128 NM NM 14.1 %
Asia-Pacific 233,152   233,571   310,794 278,117   278,117   278,117 NM NM 11.7 %
$ 3,366,366   $ 3,097,320   $ 3,969,376 $ 3,975,163   $ 3,521,186   $ 3,457,144 NM NM 14.8 %
 
Operating income:
North America $ 570,630 $ 952,881 $ 457,009 $ 780,609 24.9 % 22.1 %
Europe 318,392 349,660 272,769 302,641 16.7 % 15.5 %
Asia-Pacific 93,402 103,735 81,273 89,122 14.9 % 16.4 %
Corporate (245,369 ) (149,829 ) (252,183 ) (121,039 ) (2.7 )% 23.8 %
$ 737,055   $ 1,256,447   $ 558,868   $ 1,051,333   31.9 % 19.5 %
 

NM – Not Meaningful

 

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

(2) Global Payments adopted ASC 606 on January 1, 2018. The
new accounting standard changed the presentation of certain amounts that
we pay to third parties, including payment networks. This change in
presentation affected our reported GAAP revenues and operating expenses
by the same amount and had no effect on operating income. Also, ASC 606
changed the presentation of revenue for our gaming cash advance
solutions and had a de minimis impact on revenue from our European
business. For our gaming cash advance solutions, certain amounts we
previously presented as operating expenses are now recognized as a
reduction of revenue under GAAP.

(3) As a result of adopting ASC 606, results for 2018 and
2017 GAAP revenues and adjusted net revenue are not comparable, thus the
change from the prior year is not meaningful.

 
SCHEDULE 4
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except share data)

         
December 31,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 1,210,878 $ 1,335,855
Accounts receivable, net of allowances for doubtful accounts of
$3,164 and $1,827, respectively
348,400 301,887
Settlement processing assets 1,600,222 2,459,292
Prepaid expenses and other current assets 216,708   206,545  
Total current assets 3,376,208 4,303,579
Goodwill 6,341,355 5,703,992
Other intangible assets, net 2,488,618 2,181,707
Property and equipment, net 653,542 588,348
Deferred income taxes 8,128 13,146
Other noncurrent assets 362,923   207,297  
Total assets $ 13,230,774   $ 12,998,069  
 
LIABILITIES AND EQUITY
Current liabilities:
Settlement lines of credit $ 700,486 $ 635,166
Current portion of long-term debt 115,075 100,308
Accounts payable and accrued liabilities 1,176,703 1,039,607
Settlement processing obligations 1,276,356   2,040,509  
Total current liabilities 3,268,620 3,815,590
Long-term debt 5,015,168 4,559,408
Deferred income taxes 585,025 436,879
Other noncurrent liabilities 175,618   220,961  
Total liabilities 9,044,431   9,032,838  
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;
157,961,982 issued and outstanding at December 31, 2018 and
159,180,317 issued and outstanding at December 31, 2017
Paid-in capital 2,235,167 2,379,774
Retained earnings 2,066,415 1,597,897
Accumulated other comprehensive loss (310,175 ) (183,144 )
Total Global Payments shareholders’ equity 3,991,407 3,794,527
Noncontrolling interests 194,936   170,704  
Total equity 4,186,343   3,965,231  
Total liabilities and equity $ 13,230,774   $ 12,998,069  
 
 
SCHEDULE 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands)

         
Year Ended December 31,
2018 2017
Cash flows from operating activities:
Net income $ 484,667 $ 494,070
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 145,128 113,273
Amortization of acquired intangibles 377,685 337,878
Share-based compensation expense 57,826 39,095
Provision for operating losses and bad debts 43,237 48,443
Amortization of capitalized customer acquisition costs 51,541 45,098
Deferred income taxes (1,451 ) (250,670 )
Other, net (8,025 ) 44,070
Changes in operating assets and liabilities, net of the effects of
business combinations:
Accounts receivable (33,386 ) (14,096 )
Settlement processing assets and obligations, net 83,478 (361,673 )
Prepaid expenses and other assets (160,800 ) (129,427 )
Accounts payable and other liabilities 66,182   146,327  
Net cash provided by operating activities 1,106,082   512,388  
Cash flows from investing activities:
Business combinations and other acquisitions, net of cash acquired (1,259,692 ) (562,688 )
Capital expenditures (213,290 ) (181,905 )
Net proceeds from sales of property and equipment 37,565
Other, net (3,305 ) (28,997 )
Net cash used in investing activities (1,476,287 ) (736,025 )
Cash flows from financing activities:
Net proceeds from settlement lines of credit 70,783 221,532
Proceeds from long-term debt 2,774,214 1,994,324
Repayments of long-term debt (2,304,314 ) (1,781,541 )
Payment of debt issuance costs (16,345 ) (9,520 )
Repurchase of common stock (208,198 ) (34,811 )
Proceeds from stock issued under share-based compensation plans 14,318 10,115
Common stock repurchased – share-based compensation plans (31,510 ) (31,761 )
Distributions to noncontrolling interests (5,686 ) (9,301 )
Dividends paid (6,332 ) (6,732 )
Net cash provided by financing activities 286,930   352,305  
Effect of exchange rate changes on cash (41,702 ) 44,408  
Increase (decrease) in cash and cash equivalents (124,977 ) 173,076
Cash and cash equivalents, beginning of the period 1,335,855   1,162,779  
Cash and cash equivalents, end of the period $ 1,210,878   $ 1,335,855  
 
 
SCHEDULE 6
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES TO GAAP MEASURES
(UNAUDITED)

THREE MONTHS ENDED DECEMBER 31, 2018 AND 2017

GLOBAL PAYMENTS INC. AND SUBSIDIARIES

(In thousands, except per share data)

     
Three Months Ended December 31, 2018
GAAP    

Net Revenue
Adjustment(1)

   

Earnings
Adjustments(2)

   

Income Taxes
on
Adjustments(3)

    Non-GAAP    

Network
Fees(4)

   

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

Revenues $ 880,555 $ (61,515 ) $ $ $ 819,040 $ 218,577 $ 1,037,617
 
Operating income $ 166,986 $ 4,469 $ 156,801 $ $ 328,256
 
Net income attributable to Global Payments $ 75,214 $ 4,469 $ 153,877 $ (22,009 ) $ 211,551
 
Diluted earnings per share attributable to Global Payments $ 0.47 $ 1.33
 
Diluted weighted average shares outstanding 158,711 158,711
 
Three Months Ended December 31, 2017
GAAP

Net Revenue
Adjustment(1)

Earnings
Adjustments(2)

Income Taxes
on
Adjustments(3)

Non-GAAP

Gaming
Cash
Advance/
Other(4)

Non-GAAP
Adjusted Net
Revenue Plus
Network Fees

Revenues $ 1,054,253 $ (115,298 ) $ $ $ 938,955 $ (15,212 ) $ 923,743
 
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 share attributable to Global Payments

$ 1.51 $ 1.07
 
Diluted weighted average shares outstanding 159,827 159,827
 

(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, 2018 and December 31, 2017, includes $4.5
million and $5.2 million, respectively to eliminate the effect of
acquisition accounting fair value adjustments for software-related
contract liabilities associated with acquired businesses.

(2) For the three months ended December 31, 2018, earnings
adjustments to operating income include $122.8 million in cost of
service (COS) and $34.0 million in selling, general and administrative
expenses (SG&A). Adjustments to COS include amortization of acquired
intangibles of $114.5 million and acquisition and integration expenses
of $8.3 million. Adjustments to SG&A include share-based compensation
expense of $12.9 million, acquisition and integration expenses of $13.4
million, non-cash asset abandonment charges of $7.6 million associated
with technology integrations and other adjustments of $0.1 million.

For the three months ended December 31, 2017, earnings adjustments to
operating income include $89.5 million in COS and $39.8 million in SG&A.
Adjustments to COS include amortization of acquired intangibles of $89.3
million and other adjustments of $0.2 million. Adjustments to SG&A
include share-based compensation expense of $8.3 million and acquisition
and integration expenses of $31.5 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.

For the three months ended December 31, 2018, also includes the removal
of a $9.7 million income tax expense adjustment related to tax reform
and the removal of a tax expense adjustment associated with the vesting
of share-based awards. For the three months ended December 31, 2017,
includes the removal of a $156.

Contacts

Investor contact:
investor.relations@globalpay.com
Winnie
Smith
770-829-8478

Media contact:
media.relations@globalpay.com
Kimberly
Mann
770-829-8755

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