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Global Payments Reports First Quarter Earnings

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Global Payments Inc. (NYSE:GPN) today announced results for its fiscal first quarter ended August 31, 2014.

“We are delighted with our performance for the first quarter, which represents an excellent start to our 2015 fiscal year and further demonstrates the success of our focus on solid business execution and disciplined capital deployment,” said Jeff Sloan, Chief Executive Officer. “We continue to expand our direct distribution globally and are enthusiastic about our agreements to acquire Ezidebit and Fidelity National Information Services’ gaming business. Both of these transactions underscore our strategy to drive direct sales growth in attractive markets, deliver innovative products and solutions and leverage technological advantages.”

First Quarter 2015 Summary

  • Revenues grew 12% to $704.9 million, compared to $629.7 million in the first quarter of fiscal 2014.
  • Cash diluted earnings per share1 grew 22% to $1.22, compared to $1.00 in the first quarter of fiscal 2014.
  • GAAP diluted earnings per share were $1.10, compared to $0.87 in the first quarter of 2014.

2015 Outlook

Cameron Bready, Executive Vice President and Chief Financial Officer, stated, “As a result of our strong first quarter performance and the anticipated closing of the Ezidebit transaction during our fiscal second quarter, we are raising our annual fiscal 2015 revenue outlook to $2.74 billion to $2.79 billion, or 7% to 9% percent growth. In addition we are increasing our outlook for annual fiscal 2015 diluted earnings per share on a cash basis to a range of $4.65 to $4.75, reflecting growth of 13% to 15% over fiscal 2014, and annual fiscal 2015 GAAP diluted earnings per share is expected to be in the range of $3.89 to $3.99. We also now expect annual fiscal 2015 core cash operating margins to expand by as much as 40 basis points.”

First Quarter 2015 Dividend

Global Payments’ board of directors approved a fiscal 2015 first quarter dividend of $0.02 per common share payable November 28, 2014 to shareholders of record as of November 14, 2014.

Conference Call

Global Payments’ management will host a conference call today, October 2, 2014 at 8:30 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.

_________________________

1See Schedule 2 for cash earnings and Schedules 6 and 7 for reconciliations of historical cash earnings to GAAP.

About Global Payments

Global Payments Inc. is one of the largest worldwide providers of payment solutions for merchants, value added resellers, enterprise software providers, financial institutions, government agencies, multi-national corporations and independent sales organizations located throughout North America, Brazil, Europe and the Asia-Pacific region. Global Payments, a Fortune 1000 company, offers a comprehensive line of solutions and services for credit and debit cards, business-to-business purchasing cards, gift cards, electronic check conversion and check guarantee, verification and recovery including electronic check services, as well as terminal management. Visit www.globalpaymentsinc.com for more information about the company and its services.

This announcement and comments made by Global Payments’ management 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 and 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 non-traditional competitors; our ability to update our products and services in a timely manner; potential systems interruptions or failures; software defects or undetected errors; 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; increased attrition of merchants, referral partners or independent sales organizations; our ability to increase our share of existing markets and expand into new markets; 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; loss of key personnel; and other risks detailed in our SEC filings, including the most recently filed Annual Report on Form 10-K. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events.

SCHEDULE 1
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended August 31,
2014 2013

%
Change

(unaudited)
Revenues $ 704,895 $ 629,685 11.9 %
Operating expenses:
Cost of service 259,839 230,745 12.6 %
Sales, general and administrative 320,658 291,556 10.0 %
580,497 522,301
Operating income 124,398 107,384 15.8 %
Other income (expense):
Interest and other income 1,192 3,338 (64.3 )%
Interest and other expense (11,010 ) (7,879 ) 39.7 %
(9,818 ) (4,541 ) 116.2 %
Income before income taxes 114,580 102,843 11.4 %
Provision for income taxes (30,146 ) (31,135 ) (3.2 )%
Net income 84,434 71,708 17.7 %
Less: Net income attributable to noncontrolling interests, net of income tax (9,068 ) (7,065 ) 28.4 %
Net income attributable to Global Payments $ 75,366 $ 64,643 16.6 %
Earnings per share attributable to Global Payments:
Basic $ 1.11 $ 0.88 26.1 %
Diluted $ 1.10 $ 0.87 26.4 %
Weighted average shares outstanding:
Basic 68,146 73,765
Diluted 68,617 74,289
SCHEDULE 2
CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended August 31,
2014 2013

%
Change

Revenues $ 704,895 $ 629,685 11.9 %
Operating expenses:
Cost of service 241,985 215,773 12.1 %
Sales, general and administrative 323,599 290,060 11.6 %
565,584 505,833 11.8 %
Operating income 139,311 123,852 12.5 %
Other income (expense):
Interest and other income 1,192 3,338 (64.3 )%
Interest and other expense (11,010 ) (7,879 ) 39.7 %
(9,818 ) (4,541 ) 116.2 %
Income before income taxes 129,493 119,311 8.5 %
Provision for income taxes (35,430 ) (36,686 ) (3.4 )%
Net income 94,063 82,625 13.8 %
Less: Net income attributable to noncontrolling interests, net of income tax (10,303 ) (8,436 ) 22.1 %
Net income attributable to Global Payments $ 83,760 $ 74,189 12.9 %
Earnings per share attributable to Global Payments:
Basic $ 1.23 $ 1.01 21.8 %
Diluted $ 1.22 $ 1.00 22.0 %
Weighted average shares outstanding:
Basic 68,146 73,765
Diluted 68,617 74,289
See Schedule 6 for a reconciliation of cash earnings to GAAP.
SCHEDULE 3
SEGMENT INFORMATION
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended August 31,
2014 2013 % Change
GAAP

Cash
Earnings

GAAP

Cash
Earnings

GAAP

Cash
Earnings

Revenues:

United States $ 414,042 $ 414,042 $ 363,833 $ 363,833 13.8 % 13.8 %
Canada 89,965 89,965 86,672 86,672 3.8 % 3.8 %
North America merchant services 504,007 504,007 450,505 450,505 11.9 % 11.9 %
Europe 162,787 162,787 143,188 143,188 13.7 % 13.7 %
Asia-Pacific 38,101 38,101 35,992 35,992 5.9 % 5.9 %

International merchant services

200,888 200,888 179,180 179,180 12.1 % 12.1 %
Total revenues $ 704,895 $ 704,895 $ 629,685 $ 629,685 11.9 % 11.9 %

Operating income (loss) for segments:

North America merchant services $ 77,937 $ 89,315 $ 69,699 $ 79,404 11.8 % 12.5 %
International merchant services 73,602 77,137 61,541 68,757 19.6 % 12.2 %
Corporate (27,141 ) (27,141 ) (23,856 ) (24,309 ) (13.8 )% (11.7 )%
Operating income $ 124,398 $ 139,311 $ 107,384 $ 123,852 15.8 % 12.5 %
See Schedule 7 for reconciliation of cash earnings segment information to GAAP.
SCHEDULE 4
CONSOLIDATED BALANCE SHEETS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except share data)
August 31, 2014 May 31, 2014
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 595,884 $ 581,872
Accounts receivable, net of allowances for doubtful accounts of $531 and $401, respectively 206,641 214,574
Claims receivable, net 758 809
Settlement processing assets 1,141,608 780,917
Inventory 5,660 6,636
Deferred income taxes 12,793 12,963
Prepaid expenses and other current assets 43,380 45,673
Total current assets 2,006,724 1,643,444
Goodwill 1,324,374 1,337,285
Other intangible assets, net 511,265 535,173
Property and equipment, net 363,415 369,753
Deferred income taxes 100,813 101,928
Other 32,765 31,067
Total assets $ 4,339,356 $ 4,018,650
LIABILITIES AND EQUITY
Current liabilities:
Lines of credit $ 652,157 $ 440,128
Current portion of long-term debt 31,250 17,677
Accounts payable and accrued liabilities 248,639 290,106
Settlement processing obligations 634,061 451,317
Income taxes payable 13,390 12,390
Total current liabilities 1,579,497 1,211,618
Long-term debt 1,388,750 1,376,002
Deferred income taxes 209,941 209,099
Other long-term liabilities 90,655 89,132
Total liabilities 3,268,843 2,885,851
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; 67,672,753 issued and outstanding at August 31, 2014 and 68,845,643 issued and outstanding at May 31, 2014
Paid-in capital 139,141 183,023
Retained earnings 822,461 815,980
Accumulated other comprehensive loss (19,351 ) (1,776 )
Total Global Payments shareholders’ equity 942,251 997,227
Noncontrolling interests 128,262 135,572
Total equity 1,070,513 1,132,799
Total liabilities and equity $ 4,339,356 $ 4,018,650
SCHEDULE 5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended August 31,
2014 2013
Cash flows from operating activities:
Net income $ 84,434 $ 71,708
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization of property and equipment 16,712 13,981
Amortization of acquired intangibles 17,854 14,393
Share-based compensation expense 4,066 4,788
Provision for operating losses and bad debts 4,308 5,234
Deferred income taxes 3,705 5,784
Other, net (755 ) (1,891 )
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable 7,933 802
Claims receivable (2,742 ) (3,864 )
Settlement processing assets and obligations, net (179,462 ) (115,383 )
Inventory 981 4,448
Prepaid expenses and other assets 644 16,772
Accounts payable and other accrued liabilities (22,151 ) (40,207 )
Income taxes payable 1,000 248
Net cash used in operating activities (63,473 ) (23,187 )
Cash flows from investing activities:
Business, intangible and other asset acquisitions, net of cash acquired (4,773 )
Capital expenditures (18,157 ) (20,263 )
Principal collections on financing receivables 219 665
Net proceeds from sales of investments and business 10,528 990
Net cash used in investing activities (12,183 ) (18,608 )
Cash flows from financing activities:
Net borrowings on short-term lines of credit 212,029 141,026
Proceeds from issuance of long-term debt 390,000 440,000
Principal payments under long-term debt (363,679 ) (331,515 )
Repurchase of common stock (132,283 ) (143,700 )
Proceeds from stock issued under share-based compensation plans 12,588 3,998
Common stock repurchased – share-based compensation plans (15,105 ) (4,604 )
Tax benefit from share-based compensation plans 3,154 1,213
Distributions to noncontrolling interests (11,249 ) (12,482 )
Dividends paid (1,370 ) (1,456 )
Net cash provided by financing activities 94,085 92,480
Effect of exchange rate changes on cash (4,417 ) (5,268 )
Increase in cash and cash equivalents 14,012 45,417
Cash and cash equivalents, beginning of period 581,872 680,470
Cash and cash equivalents, end of period $ 595,884 $ 725,887
SCHEDULE 6
RECONCILIATION OF CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended August 31, 2014

GAAP

Other1

Cash Earnings
Adjustments2

Cash
Earnings

Revenues $ 704,895 $ - $ - $ 704,895
Operating expenses:
Cost of service 259,839 (17,854 ) 241,985
Sales, general and administrative 320,658 2,941 323,599
580,497 2,941 (17,854 ) 565,584
Operating income 124,398 (2,941 ) 17,854 139,311
Other income (expense):
Interest and other income 1,192 1,192
Interest and other expense (11,010 ) (11,010 )
(9,818 ) (9,818 )
Income before income taxes 114,580 (2,941 ) 17,854 129,493
Provision for income taxes (30,146 ) 588 (5,872 ) (35,430 )
Net income 84,434 (2,353 ) 11,982 94,063
Less: Net income attributable to noncontrolling interests, net of income tax (9,068 ) (1,235 ) (10,303 )
Net income attributable to Global Payments $ 75,366 $ (2,353 ) $ 10,747 $ 83,760
Diluted shares 68,617 68,617
Diluted earnings per share $ 1.10 $ (0.03 ) $ 0.15 $ 1.22
Three Months Ended August 31, 2013

GAAP

Other1

Cash Earnings
Adjustments2

Cash
Earnings

Revenues $ 629,685 $ - $ - $ 629,685
Operating expenses:
Cost of service 230,745 (579 ) (14,393 ) 215,773
Sales, general and administrative 291,556 (1,496 ) 290,060
522,301 (2,075 ) (14,393 ) 505,833
Operating income 107,384 2,075 14,393 123,852
Other income (expense):
Interest and other income 3,338 3,338
Interest and other expense (7,879 ) (7,879 )
(4,541 ) (4,541 )
Income before income taxes 102,843 2,075 14,393 119,311
Provision for income taxes (31,135 ) (789 ) (4,762 ) (36,686 )
Net income 71,708 1,286 9,631 82,625
Less: Net income attributable to noncontrolling interests, net of income tax (7,065 ) (1,371 ) (8,436 )
Net income attributable to Global Payments $ 64,643 $ 1,286 $ 8,260 $ 74,189
Diluted shares 74,289 74,289
Diluted earnings per share $ 0.87 $ 0.02 $ 0.11 $ 1.00
1For the three months ended August 31, 2014, represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia. For the three months ended August 31, 2013, represents one-time charges primarily related to employee termination benefits and resolution of a contract related contingency.
2Represents adjustments to cost of service to exclude acquisition intangible amortization expense and the related income tax benefit.
We supplemented our reporting of income and the related earnings per share information determined in accordance with GAAP by reporting income and the related earnings per share for the three months ended August 31, 2014 and 2013 on a “cash earnings” basis in this earnings release as a measure to help evaluate performance. We calculated income and earnings per share on a cash basis by excluding amounts related to a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia and acquisition intangible amortization. We exclude these charges in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations. Our income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, income and earnings per share determined in accordance with GAAP. Our measures of income and earnings per share on a cash earnings basis reflect management’s judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.
SCHEDULE 7
RECONCILIATION OF CASH EARNINGS SEGMENT INFORMATION TO GAAP
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
Three Months Ended August 31,
2014 2013
GAAP Other1

Cash Earnings
Adjustments2

Cash
Earnings

GAAP Other1

Cash Earnings
Adjustments2

Cash
Earnings

Revenues:
United States $ 414,042 $ $ $ 414,042 $ 363,833 $ $ $ 363,833
Canada 89,965 89,965 86,672 86,672
North America merchant services 504,007 504,007 450,505 450,505
Europe 162,787 162,787 143,188 143,188
Asia-Pacific 38,101 38,101 35,992 35,992
International merchant services 200,888 200,888 179,180 179,180
Total revenues $ 704,895 $ $ $ 704,895 $ 629,685 $ $ $ 629,685
Operating income (loss) for segments:
North America merchant services 77,937 11,378 89,315 69,699 2,518 7,187 79,404
International merchant services 73,602 (2,941 ) 6,476 77,137 61,541 10 7,206 68,757
Corporate (27,141 ) (27,141 ) (23,856 ) (453 ) (24,309 )
Operating income $ 124,398 $ (2,941 ) $ 17,854 $ 139,311 $ 107,384 $ 2,075 $ 14,393 $ 123,852

1 For the three months ended August 31, 2014, represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia. For the three months ended August 31, 2013, represents one-time charges primarily related to employee termination benefits and resolution of a contract related contingency.

2 Represents acquisition intangible amortization expense.

SCHEDULE 8
OUTLOOK SUMMARY
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In billions, except per share data)

Fiscal 2014
Actual

Fiscal 2015
Outlook

% Change
FY14

Revenue Outlook

Total Revenues $ 2.55 $2.74 to $2.79 7% to 9%

EPS Outlook

Cash EPS $ 4.12 $4.65 to $4.75 13% to 15%
Acquisition-related intangibles assets, non-recurring items and processing system intrusion1 (0.75 )

(0.76

)

1%
GAAP Diluted EPS $ 3.37 $3.89 to $3.99 15% to 18%
We supplemented our reporting of income and the related earnings per share information determined in accordance with GAAP by reporting income and the related earnings per share for the fiscal years 2015 and 2014 on a “cash earnings” basis in this earnings release as a measure to help evaluate performance. We calculated income and earnings per share on a cash basis by excluding amounts related to the processing system intrusion, acquisition intangible amortization, acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, a nonrecurring charge associated with our retained interest in Brazil, non-cash losses from the retirement of fixed assets, employee termination benefits and resolution of a contract related contingency and an adjustment to the costs associated with the debt refinancing. We exclude these charges in order to more clearly focus on the factors we believe are pertinent to the daily management of our operations. Our income and earnings per share reported on a cash earnings basis should be considered in addition to, and not as a substitute for, income and earnings per share determined in accordance with GAAP. Our measures of income and earnings per share on a cash earnings basis reflect management’s judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.

1 Fiscal 2015 reflects $0.72 of acquisition-related intangibles amortization and $0.04 of one-time charges. Fiscal 2014 reflects acquisition-related intangibles amortization of $0.51, processing system intrusion of ($0.07), and non-recurring items of $0.31. Other non-recurring items include acceleration of equity awards and other costs associated with the retirement of our former Chairman and CEO, a credit related to the sale of an interest in our Brazil business and a subsequent charge associated with our retained interest, cost associated with the debt refinancing we completed in February 2014, non-cash losses from the retirement of fixed assets, charges related to employee termination benefits and HSBC’s share of dividends declared by Global Payments Asia-Pacific.

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