GLOBAL PAYMENTS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management's Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements.
Executive Overview
We are a leading payments technology company delivering innovative software and services to our customers globally. Our technologies, services and team member expertise allow us to provide a broad range of solutions that enable our customers to operate their businesses more efficiently across a variety of channels around the world. We have grown organically as well as through acquisitions. We continue to invest in new technology solutions and innovation, infrastructure to support our growing business and the consolidation and enhancement of our operating platforms. These investments include new product development and innovation to further enhance and differentiate our suite of technology and cloud-based solutions available to customers, along with migration of certain underlying technology platforms to cloud environments to enhance performance, improve speed to market and drive cost efficiencies. We continue to execute on merger and integration activities, such as combining business operations, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures and realizing scale efficiencies.
Highlights related to our financial condition at
•Consolidated revenues for the three and six months endedJune 30, 2022 increased to$2,280.9 million and$4,437.2 million , respectively, compared to$2,137.4 million and$4,127.4 million , respectively, for the prior year. The increase in consolidated revenues was primarily due to an increase in transaction volumes as a result of growth in customer base, acceleration in the use of digital payment solutions and continued economic recovery from the effects of the COVID-19 pandemic, slightly offset by the effects of unfavorable foreign currency exchange rates and lower spending volumes in our Business and Consumer Solutions segment as individual stimulus payments and supplementary unemployment amounts distributed to our customers by theU.S. government in the first half of 2021 did not recur in 2022. •During the first quarter of 2022, we commenced a strategic evaluation of the consumer portion of our Business and Consumer Solutions segment, and the consumer business met the criteria for classification as held for sale in our consolidated balance sheet as ofJune 30, 2022 . OnJuly 31, 2022 , we entered into a definitive agreement to sell the consumer business for$1 billion . We will provide up to$675 million of seller financing and$80 million of future services in connection with the sale. The transaction is expected to close prior to the end of the first quarter of 2023. Consolidated operating loss for the three and six months endedJune 30, 2022 included the effects of a$833.1 million goodwill impairment charge related to the Business and Consumer Solutions reporting unit.
•We sold our Merchant Solutions business in
•Merchant Solutions segment operating income and operating margin for the three and six months endedJune 30, 2022 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management. Issuer Solutions segment operating income and operating margin for the three and six months endedJune 30, 2022 decreased compared to the prior year primarily due to the effects of unfavorable foreign currency exchange rates. 28 -------------------------------------------------------------------------------- Table of Contents Subsequent Events
Pending Business Acquisition and Related Bridge Facility
OnAugust 1, 2022 , we entered into a merger agreement to acquire all outstanding equity of EVO Payments, Inc. ("EVO") for$34 per share, or approximately$3.4 billion in preliminary estimated cash consideration to be transferred to EVO shareholders, which equates to an enterprise value of approximately$4 billion . EVO is a leading payment technology and services provider, offering an array of innovative, reliable, and secure payment solutions to merchants ranging from small and middle market merchant enterprises to multinational companies and organizations across theAmericas andEurope . The acquisition aligns with our technology-enabled payments strategy, expands our geographic presence and augments our business-to-business software and payment solutions business. The acquisition is expected to close prior to the end of first quarter of 2023, subject to regulatory and shareholder approvals. In connection with our entry into the merger agreement, onAugust 1, 2022 , we obtained commitments for a$4.3 billion , 364-day senior unsecured bridge facility (the "Bridge Facility"). The Bridge Facility establishes an unsecured capital structure under which we can refinance our Senior Unsecured Credit Facilities in order to pay the cash consideration to acquire all outstanding equity of EVO in accordance with the terms of the merger agreement, refinance certain outstanding indebtedness of EVO in connection with the acquisition and pay related transaction fees and expenses. We expect to execute permanent financing prior to the closing of the acquisition that will eliminate the need for the Bridge Facility commitments. Estimated fees associated with the Bridge Facility of$17.3 million will be amortized to interest expense through the expected date of termination of the Bridge Facility commitment.
Convertible Senior Notes
OnAugust 1, 2022 , we entered into an investment agreement withSilver Lake Partners relating to the issuance of$1.5 billion in aggregate principal amount of 1.0% convertible unsecured senior notes ('Convertible Notes") due 2029 in a private placement. The interest rate of the Convertible Notes is fixed at 1.0% per annum and is payable semi-annually. The Convertible Notes are convertible at the option of the holder after 18 months at a 15% conversion premium. Upon conversion of the Convertible Notes, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. In connection with the offering of the Convertible Notes, we expect to enter into a convertible note hedge transaction with certain bank counterparties whereby we have the option to purchase shares of our common stock. In addition, we expect to sell warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase shares of our common stock. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset the dilutive effect from the conversion of the Convertible Notes.
Effects of COVID-19 and Other Global Events
COVID-19
The COVID-19 pandemic has caused and may continue to cause significant
disruptions to businesses and markets worldwide through the continued spread of
the virus, including through a resurgence of COVID-19 cases or emergence of new
virus variants in certain jurisdictions. The pandemic and measures to prevent
its spread have affected and may continue to affect our financial results in
various geographic locations as a result of volatility in spending and
transaction volumes as governments implement or ease restrictions in response to
the virus. While we continue to see signs of economic recovery, which has
positively affected our financial results, the rate of recovery on a global
basis has been and may continue to be affected by additional developments
related to COVID-19 as well as other global events and economic conditions. We
continue to closely monitor the COVID-19 pandemic; however, the implications on
future global economic conditions and related effects on our business and
financial condition are difficult to predict due to continuing uncertainties
around the ultimate severity, scope and duration of the pandemic, vaccine
administration rates and efficacy, resurgence of COVID-19 cases and emergence of
new virus variants and the direction or extent of current or future restrictive
actions that may be imposed by governments or public health authorities.
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Invasion of Ukraine by Russia
We also continue to evaluate the potential effects on our business from other
economic conditions and global events, including the ongoing Russia invasion of
Ukraine that began in February 2022 . In response to the invasion of Ukraine by
Russia , economic sanctions were imposed on individuals and entities in Russia ,
including financial institutions, by governments around the world, including the
U.S. and the European Union . Prior to sale, our business in Russia represented
an immaterial portion of our operations and financial results. We have no team
members or operations in Ukraine .
The invasion of Ukraine by Russia and the sanctions and other measures imposed
in response to this situation have increased the level of economic and political
uncertainty in Russia and other areas of the world. Risks associated with
heightened geopolitical and economic instability include, among others,
reduction in consumer, government or corporate spending, international
sanctions, embargoes, heightened inflation, volatility in global financial
markets and foreign currency rates, increased cyber disruptions and higher
supply chain costs. The extent to which the effects of the invasion of Ukraine
by Russia will affect the global economy and our operations outside of Russia is
difficult to predict at this time. However, a significant escalation, expansion
of the scope or continuation of the related economic disruption could have an
adverse effect on our business and financial results.
Foreign Currency Exchange Rate Risk
We also continue to monitor other potential effects on our financial statements as a result of these and other global developments, including fluctuations in foreign currency and actions taken by central banks to counter inflation. Certain of our operations are conducted in foreign currencies. Consequently, a portion of our revenues and expenses may be affected by fluctuations in foreign currency exchange rates. Recently, the US dollar has strengthened against certain foreign currencies in the markets in which we operate. For the three and six months endedJune 30, 2022 , currency exchange rate fluctuations decreased our consolidated revenues by approximately$42.2 million and$56.9 million , respectively, and decreased our operating income by approximately$11.7 million and$16.4 million , respectively, calculated by converting revenues and operating income for the current year in local currencies using exchange rates for the prior year. A continuation or worsening of fluctuations in foreign currency exchange rates could result in an adverse effect on our future financial results; however, we are unable to predict the extent of the potential effect on our financial results. For a further discussion of trends, uncertainties and other factors that could affect our future operating results, see the section entitled "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year endedDecember 31, 2021 and subsequent filings we make with theSEC , including this Quarterly Report on Form 10-Q. 30 -------------------------------------------------------------------------------- Table of Contents Results of Operations We operate in three reportable segments: Merchant Solutions, Issuer Solutions and Business and Consumer Solutions. We evaluate performance and allocate resources based on the operating income of each operating segment. During the first quarter of 2022, the recently acquired operations of MineralTree were reassigned to the Issuer Solutions segment to reflect how the business will be managed going forward. As a result of the planned divestiture of the consumer portion of our Business and Consumer Solutions segment, we anticipate that we will realign the retained business-to-business portion of the Business and Consumer Solutions segment to the Issuer Solutions segment during the third quarter of 2022 to reflect how the business will be managed going forward. We would begin reporting on the revised basis during the third quarter of 2022 and recast prior periods to reflect the change in segment reporting. For further information about our reportable segments, see "Item 1. Business-Business Segments" within our Annual Report on Form 10-K for the year endedDecember 31, 2021 , incorporated herein by reference, and "Note 13-Segment Information" in the notes to the accompanying unaudited consolidated financial statements. The following table sets forth key selected financial data for the three months endedJune 30, 2022 and 2021, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount. The income statement data for the three months endedJune 30, 2022 and 2021 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements. 31
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Three Months Ended Three Months Ended
June 30, 2022 % of Revenues(1) June 30, 2021 % of Revenues(1) $ Change % Change
(dollar amounts in thousands)
Revenues(2):
Merchant Solutions $ 1,581,716 69.3 % $ 1,426,755 66.8 % $ 154,961 10.9 %
Issuer Solutions 534,471 23.4 % 505,932 23.7 % 28,539 5.6 %
Business and Consumer Solutions 187,632 8.2 % 227,355 10.6 % (39,723) (17.5) %
Intersegment eliminations (22,913) (1.0) % (22,605) (1.1) % (308) 1.4 %
Consolidated revenues $ 2,280,906 100.0 % $ 2,137,437 100.0 % $ 143,469 6.7 %
Consolidated operating expenses(2):
Cost of service $ 962,299 42.2 % $ 936,310 43.8 % $ 25,989 2.8 %
Selling, general and administrative 863,179 37.8 % 838,569 39.2 % 24,610 2.9 %
Impairment of goodwill(4) 833,075 36.5 % - - % 833,075 NM
Loss on business dispositions(5) 152,211 6.7 % - - % 152,211 NM
Operating expenses $ 2,810,764 123.2 % $ 1,774,879 83.0 % $ 1,035,885 58.4 %
Operating income (loss)(2):
Merchant Solutions $ 535,359 23.5 % $ 437,293 20.5 % $ 98,066 22.4 %
Issuer Solutions 67,715 3.0 % 74,806 3.5 % (7,091) (9.5) %
Business and Consumer Solutions 31,726 1.4 % 42,283 2.0 % (10,557) (25.0) %
Corporate(3) (179,372) (7.9) % (191,824) (9.0) % 12,452 (6.5) %
Impairment of goodwill(4) (833,075) (36.5) % - - % (833,075) NM
Loss on business dispositions(5) (152,211) (6.7) % - - % (152,211) NM
Operating income (loss) $ (529,858) (23.2) % $ 362,558 17.0 % $ (892,416) (246.1) %
Operating margin(2):
Merchant Solutions 33.8 % 30.6 % 3.2 %
Issuer Solutions 12.7 % 14.8 % (2.1) %
Business and Consumer Solutions 16.9 % 18.6 % (1.7) %
NM = Not meaningful
(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, consolidated operating expenses, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates and the effects of divested businesses through the respective disposal dates. For the three months endedJune 30, 2022 , the consumer business contributed$161.6 million to revenues and$21.9 million to operating income of the Business and Consumer Solutions segment. For the three months endedJune 30, 2021 , the consumer business contributed$204.6 million to revenues and$33.9 million to operating income of the Business and Consumer Solutions segment. See "Note 2-Acquisition" and "Note 3-Business Dispositions" for further discussion. (3) Operating loss for Corporate included acquisition and integration expenses of$61.4 million and$76.8 million during the three months endedJune 30, 2022 and 2021, respectively. 32 -------------------------------------------------------------------------------- Table of Contents (4) During the three months endedJune 30, 2022 , consolidated operating loss included a$833.1 million goodwill impairment charge related to the Business and Consumer Solutions reporting unit. See "Note 5-Goodwill and Other Intangible Assets" for further discussion. (5) During the three months endedJune 30, 2022 , consolidated operating loss included a$127.2 million loss on the sale of our Merchant Solutions business inRussia and a charge for the estimated costs to sell our consumer business. The following table sets forth key selected financial data for the six months endedJune 30, 2022 and 2021, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount. The income statement data for the six months endedJune 30, 2022 and 2021 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements. Six Months Ended Six Months Ended June 30, 2022 % of Revenues(1) June 30, 2021 % of Revenues(1) $ Change % Change (dollar amounts in thousands) Revenues(2): Merchant Solutions$ 3,054,735 68.8 %$ 2,694,627 65.3 %$ 360,108 13.4 % Issuer Solutions 1,045,972 23.6 % 1,006,183 24.4 % 39,789 4.0 % Business and Consumer Solutions 383,404 8.6 % 470,941 11.4 % (87,537) (18.6) % Intersegment eliminations (46,951) (1.1) % (44,307) (1.1) % (2,644) 6.0 % Consolidated revenues$ 4,437,160 100.0 %$ 4,127,444 100.0 %$ 309,716 7.5 % Consolidated operating expenses(2): Cost of service$ 1,919,457 43.3 %$ 1,861,556 45.1 %$ 57,901 3.1 % Selling, general and administrative 1,686,328 38.0 % 1,628,071 39.4 % 58,257 3.6 % Impairment of goodwill(4) 833,075 18.8 % - - % 833,075 NM Loss on business dispositions(5) 152,211 3.4 % - - % 152,211 NM Operating expenses$ 4,591,071 103.5 %$ 3,489,627 84.5 %$ 1,101,444 31.6 % Operating income (loss)(2): Merchant Solutions$ 979,889 22.1 %$ 777,283 18.8 %$ 202,606 26.1 % Issuer Solutions 125,816 2.8 % 143,262 3.5 % (17,446) (12.2) % Business and Consumer Solutions 65,385 1.5 % 104,205 2.5 % (38,820) (37.3) % Corporate(3) (339,715) (7.7) % (386,933) (9.4) % 47,218 (12.2) % Impairment of goodwill(4) (833,075) (18.8) % - - % (833,075) NM Loss on business dispositions(5) (152,211) (3.4) % - - % (152,211) NM Operating income (loss)$ (153,911) (3.5) %$ 637,817 15.5 %$ (791,728) (124.1) % Operating margin(2): Merchant Solutions 32.1 % 28.8 % 3.3 % Issuer Solutions 12.0 % 14.2 % (2.2) % Business and Consumer Solutions 17.1 % 22.1 % (5.0) % NM = Not meaningful
(1) Percentage amounts may not sum to the total due to rounding.
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(2) Revenues, consolidated operating expenses, operating income (loss) and
operating margin reflect the effects of acquired businesses from the respective
acquisition dates and the effects of divested businesses through the respective
disposal dates. For the six months ended June 30, 2022 , the consumer business
contributed $330.7 million to revenues and $44.6 million to operating income of
the Business and Consumer Solutions segment. For the six months ended June 30,
2021 , the consumer business contributed $425.1 million to revenues and $87.6
million to operating income of the Business and Consumer Solutions segment. See
"Note 2-Acquisition" and "Note 3-Business Dispositions" for further discussion.
(3) Operating loss for Corporate included acquisition and integration expenses
of $109.5 million and $167.0 million during the six months ended June 30, 2022
and 2021, respectively.
(4) During the six months ended June 30, 2022 , consolidated operating loss
included a $833.1 million goodwill impairment charge related to the Business and
Consumer Solutions reporting unit. See "Note 5-Goodwill and Other Intangible
Assets" for further discussion.
(5) During the six months ended
Revenues
Consolidated revenues for the three and six months endedJune 30, 2022 increased by 6.7% and 7.5%, respectively, to$2,280.9 million and$4,437.2 million , respectively, compared to$2,137.4 million and$4,127.4 million , respectively, for the prior year. The increase in revenues was primarily due to an increase in transaction volumes as a result of growth in customer base, acceleration in the use of digital payment solutions and continued economic recovery from the effects of the COVID-19 pandemic, partially offset by the effects of unfavorable foreign currency exchange rates. While we continue to see signs of economic recovery, which has positively affected our financial results in 2022 compared to the prior year, the rate of recovery on a global basis has been and may continue to be affected by additional developments related to COVID-19 as well as other global events and economic conditions. Merchant Solutions Segment. Revenues from our Merchant Solutions segment for the three and six months endedJune 30, 2022 increased by 10.9% and 13.4%, respectively, to$1,581.7 million and$3,054.7 million , respectively, compared to$1,426.8 million and$2,694.6 million , respectively, for the prior year. The increase in revenues was primarily due to an increase in transaction volumes as a result of growth in customer base, acceleration in the use of digital payment solutions and continued economic recovery from the effects of the COVID-19 pandemic. The increase in revenues was partially offset by the effects of unfavorable foreign currency exchange rates of$28.8 million and$39.9 million for the three and six months endedJune 30, 2022 , respectively Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the three and six months endedJune 30, 2022 increased by 5.6% and 4.0%, respectively, to$534.5 million and$1,046.0 million , respectively, compared to$505.9 million and$1,006.2 million , respectively, for the prior year. The increase in revenues was primarily due to an increase in transaction volumes from continued economic recovery from the effects of the COVID-19 pandemic and the inclusion of the recently acquired MineralTree business within the Issuer Solutions segment beginning with the first quarter of 2022. The increase in revenues was partially offset by the effects of unfavorable foreign currency exchange rates of$12.8 million and$16.1 million for the three and six months endedJune 30, 2022 , respectively. Business and Consumer Solutions Segment. Revenues from our Business and Consumer Solutions segment for the three and six months endedJune 30, 2022 were$187.6 million and$383.4 million , respectively, compared to$227.4 million and$470.9 million , respectively, for the prior year. Revenues for the three and six months endedJune 30, 2022 were affected by lower spending volumes as individual stimulus payments and supplementary unemployment amounts distributed to our customers by theU.S. government in the first half of 2021 did not recur in 2022. 34 -------------------------------------------------------------------------------- Table of Contents Operating Expenses Cost of Service. Cost of service for the three and six months endedJune 30, 2022 increased by 2.8% and 3.1%, respectively, to$962.3 million and$1,919.5 million , respectively, compared to$936.3 million and$1,861.6 million , respectively, for the prior year. Cost of service as a percentage of revenues decreased to 42.2% and 43.3%, respectively, for the three and six months endedJune 30, 2022 compared to 43.8% and 45.1%, respectively, for the prior year. The increase in cost of service was primarily due to higher variable costs associated with the increase in revenues. The decrease in cost of service as a percentage of revenues was primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues. Cost of service includes amortization of acquired intangibles, which were$327.4 million and$324.8 million for the three months endedJune 30, 2022 and 2021, respectively, and$656.4 million and$654.0 million for the six months endedJune 30, 2022 and 2021, respectively. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and six months endedJune 30, 2022 increased by 2.9% and 3.6%, respectively, to$863.2 million and$1,686.3 million , respectively, compared to$838.6 million and$1,628.1 million , respectively, for the prior year. Selling, general and administrative expenses as a percentage of revenues decreased to 37.8% and 38.0% for the three and six months endedJune 30, 2022 , respectively, compared to 39.2% and 39.4%, respectively, for the prior year. The increase in selling, general and administrative expenses was primarily due to an increase in variable selling and other costs related to the increase in revenues. The decrease in selling, general and administrative expenses as a percentage of revenues is primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and lower acquisition and integration expenses in the current year. Selling, general and administrative expenses included acquisition and integration expenses of$61.8 million and$78.3 million for the three months endedJune 30, 2022 and 2021, respectively, and$112.9 million and$170.1 million for the six months endedJune 30, 2022 and 2021, respectively. Corporate. Corporate expenses for the three and six months endedJune 30, 2022 decreased by$12.5 million and$47.2 million , respectively, to$179.4 million and$339.7 million , respectively, compared to$191.8 million and$386.9 million , respectively for the prior year. The decrease was primarily due to lower acquisition and integration expenses, which were$61.4 million and$109.5 million for the three and six months endedJune 30, 2022 , respectively, compared to$76.8 million and$167.0 million for the three and six months endedJune 30, 2021 , respectively.
Operating Income (Loss) and Operating Margin
Consolidated operating loss and negative operating margin for the three and six months endedJune 30, 2022 included the effects of the loss on the sale of our Merchant Solutions business inRussia and the goodwill impairment charge related to the Business and Consumer Solutions reporting unit, partially offset by the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and lower acquisition and integration expenses.
Segment Operating Income and Operating Margin
In our Merchant Solutions segment, operating income and operating margin for the three and six months endedJune 30, 2022 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management, slightly offset by incremental expenses related to continued investment in new product, innovation and our technology environments and the effects of unfavorable foreign currency exchange rates. In our Issuer Solutions segment, operating income and operating margin for the three and six months endedJune 30, 2022 decreased compared to the prior year primarily due to the effects of unfavorable foreign currency exchange rates and the recently acquired operations of MineralTree. In our Business and Consumer Solutions segment, operating income and operating margin for the three and six months endedJune 30, 2022 were unfavorably affected by lower spending volumes as individual stimulus payments and supplementary unemployment amounts distributed to our customers by theU.S. government in the first half of 2021 did not recur in 2022. Other Income/Expense, Net Interest and other expense for the three and six months endedJune 30, 2022 increased to$99.2 million and$192.5 million , respectively, compared to$80.6 million and$163.7 million , respectively, for the prior year, as a result of the increase 35 -------------------------------------------------------------------------------- Table of Contents in our average outstanding borrowings and higher average interest rates on outstanding borrowings, as the average LIBOR rate was higher during the three and six months endedJune 30, 2022 as compared to the prior year.
Income Tax Expense
For the three and six months endedJune 30, 2022 , we incurred income tax expense in spite of reporting a loss before income taxes. We recognized no tax benefit for the goodwill impairment charge and the loss on the sale of our Merchant Solutions business inRussia The effective tax rate for the six months endedJune 30, 2021 included the favorable effect of a change in the assessment of the need for a valuation allowance related to foreign tax credit carryforwards that did not recur in the current year.
Net Income (Loss) Attributable to
Net loss attributable toGlobal Payments was$673.0 million and$428.3 million , respectively, for the three and six months endedJune 30, 2022 compared to net income of$263.6 million and$460.3 million , respectively, for the prior year, reflecting the changes in operating income (loss) and lower equity in income of equity method investments. Equity in income of equity method investments for the three and six months endedJune 30, 2022 included a decrease in fair value of investments held at certain investees, compared to appreciation in fair value of investments held at certain investees in the first half of 2021.
Diluted Earnings (Loss) per Share
Diluted loss per share was$2.42 and$1.53 , respectively, for the three and six months endedJune 30, 2022 compared to diluted earnings per share of$0.89 and$1.55 , respectively, for the prior year. Diluted loss per share for the three and six months endedJune 30, 2022 reflects the changes in net income (loss) and the decrease in the weighted-average number of shares outstanding.
Liquidity and Capital Resources
We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing. In the ordinary course of our business, a significant portion of our liquidity comes from operating cash flows and borrowings, including the capacity under our credit facilities.
Our capital allocation priorities are to make planned capital investments in our business, to pursue acquisitions that meet our corporate objectives, to pay dividends, to pay principal and interest on our outstanding debt and to repurchase shares of our common stock. Our significant contractual cash requirements also include ongoing payments for lease liabilities and contractual obligations related to service arrangements with suppliers for fixed or minimum amounts, which primarily relate to software, technology infrastructure and related services. Commitments under our borrowing arrangements are further described in "Note 6-Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." For additional information regarding our other cash commitments and contractual obligations, see "Note 6-Leases," and "Note 17-Commitments and Contingencies" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Our capital plan objectives are to support our operational needs and strategic plan for long-term growth while optimizing our cost of capital and financial position. To supplement cash from operating activities, we use a combination of bank financing, such as borrowings under our credit facilities, and senior note issuances for general corporate purposes and to fund acquisitions. In addition, specialized lines of credit are also used in certain of our markets to fund merchant settlement prior to receipt of funds from the card networks. We believe that our current level of cash and borrowing capacity under our senior unsecured revolving credit facility, together with expected future cash flows from operations, will be sufficient to meet both the near-term and long-term needs of our existing operations and planned requirements. We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future through the issuance of debt or equity or by other means. Accumulated cash balances are invested in high-quality, marketable short-term instruments. 36 -------------------------------------------------------------------------------- Table of Contents AtJune 30, 2022 , we had cash and cash equivalents totaling$1,933.3 million . Of this amount, we considered$700.8 million to be available for general purposes, of which$32.1 million is undistributed foreign earnings considered to be indefinitely reinvested outsidethe United States . The available cash of$700.8 million does not include the following: (i) settlement-related cash balances, (ii) funds held as collateral for merchant losses ("Merchant Reserves") and (iii) funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted in their use; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. Merchant Reserves serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant's agreement. While this cash is not restricted in its use, we believe that designating this cash as a Merchant Reserve strengthens our fiduciary standing with our member sponsors. Funds held for customers, which are not restricted in their use, include amounts collected before the corresponding obligation is due to be settled to or at the direction of our customers. We also had restricted cash of$165.8 million as ofJune 30, 2022 , representing amounts deposited by customers for prepaid card transactions. These balances are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use. Operating activities provided net cash of$1,198.1 million and$1,109.6 million for the six months endedJune 30, 2022 and 2021, respectively, which reflect net loss adjusted for noncash items, including depreciation and amortization, charges associated with the impairment of goodwill and loss on business dispositions and changes in operating assets and liabilities. Fluctuations in operating assets and liabilities are affected primarily by timing of month-end and transaction volume, including changes in settlement processing assets and obligations and accounts payable and other liabilities balances. The increase in cash flows from operating activities from the prior year included an increase in net settlement processing obligations due to timing of month-end and transaction volume, partially offset by an increase in prepaid expenses and other assets as a result of additional capitalized contract costs, capitalized implementation costs associated with cloud computing arrangements and timing associated with other prepaid services. We used net cash in investing activities of$363.7 million and$1,161.9 million during the six months endedJune 30, 2022 and 2021, respectively, primarily to fund acquisitions and capital expenditures. During the six months endedJune 30, 2022 and 2021, we used cash of$9.9 million and$943.1 million , respectively, for acquisitions. We made capital expenditures of$324.0 million and$219.6 million during the six months endedJune 30, 2022 and 2021, respectively. These investments include software and hardware to support the development of new technologies, infrastructure to support our growing business and the consolidation and enhancement of our operating platforms. These investments also include new product development and innovation to further enhance and differentiate our suite of technology and cloud-based solutions available to customers. We expect to continue to make significant capital investments in the business, and we anticipate capital expenditures to remain as a similar percentage of revenues for the year endingDecember 31, 2022 as compared to the year endedDecember 31, 2021 . Additionally, investing cash flows for the six months endedJune 30, 2022 includes the net effect on cash from the sale of our Merchant Solutions business inRussia . Financing activities include borrowings and repayments under our various debt arrangements, as well as borrowings and repayments made under specialized lines of credit to fund daily settlement activities. Our borrowing arrangements are further described in "Note 6-Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, cash distributions made to our shareholders and cash contributions from and distributions to noncontrolling interests. We used net cash in financing activities of$742.7 million and$91.8 million during the six months endedJune 30, 2022 and 2021, respectively. Proceeds from long-term debt were$2,954.2 million and$2,821.0 million for the six months endedJune 30, 2022 and 2021, respectively. Repayments of long-term debt were$2,276.5 million and$1,830.3 million for the six months endedJune 30, 2022 and 2021, respectively. Proceeds from and repayments of long-term debt consist of borrowings and repayments that we make with available cash, from time-to-time, under our revolving credit facility, as well as scheduled principal repayments we make on our term loans. OnFebruary 26, 2021 , we issued$1.1 billion aggregate principal amount of 1.200% senior unsecured notes dueFebruary 2026 . We used the net proceeds from this offering to fund the redemption in full of the 3.800% senior unsecured notes dueApril 2021 , to repay a portion of the outstanding indebtedness under our revolving credit facility and for general corporate purposes. 37
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Activity under our settlement lines of credit is affected primarily by timing of month-end and transaction volume. During the six months endedJune 30, 2022 and 2021, we had net borrowings from settlement lines of credit of$4.1 million and$134.2 million , respectively. We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase ("ASR") programs. During the six months endedJune 30, 2022 and 2021, we used$1,250.0 million and$1,072.9 million , respectively, to repurchase shares of our common stock. The activity for the six months endedJune 30, 2021 included the repurchase of 2,491,161 shares at an average price of$200.71 per share under an ASR agreement we entered into onFebruary 10, 2021 with a financial institution to repurchase an aggregate of$500 million of our common stock during the ASR program purchase period, which ended onMarch 31, 2021 .
As of
We paid dividends to our common shareholders in the amounts of$139.3 million and$114.9 million during the six months endedJune 30, 2022 and 2021, respectively. Additionally, during the six months endedJune 30, 2022 , we made distributions to noncontrolling interests in the amount of$14.4 million and paid contingent consideration of$15.7 million related to a 2021 acquisition.
Long-Term Debt and Lines of Credit
Senior Unsecured Notes
We have$9.4 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging fromJune 2023 toAugust 2049 . Interest on the senior notes is payable semi-annually at various dates. Each series of the senior notes is redeemable, at our option, in whole or in part, at any time and from time-to-time at the redemption prices set forth in the related indenture.
Senior Unsecured Credit Facilities
As of
We may issue standby letters of credit of up to$250 million in the aggregate under the revolving credit facility. Outstanding letters of credit under the revolving credit facility reduce the amount of borrowings available to us. The amounts available to borrow under the revolving credit facility are also determined by a financial leverage covenant. As ofJune 30, 2022 , the total available commitments under the revolving credit facility were$1.7 billion .
Compliance with Covenants
The senior unsecured term loan and revolving credit facilities contain customary conditions to funding, affirmative covenants, negative covenants, financial covenants and events of default. As ofJune 30, 2022 , financial covenants under the term loan facility required a leverage ratio of 3.50 to 1.00 and an interest coverage ratio of 3.00 to 1.00. We were in compliance with all applicable covenants as ofJune 30, 2022 .
Settlement Lines of Credit
In various markets where we do business, we have specialized lines of credit that are restricted for use in funding settlement. The settlement lines of credit generally have variable interest rates, are subject to annual review and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. For certain of our lines of credit, the available credit is increased by the amount of cash we have on deposit in specific accounts with the lender. Accordingly, the amount of the outstanding lines of credit may exceed the stated credit limit. As ofJune 30, 2022 , a total of$81.2 million of cash on deposit was used to determine the available credit. 38
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As ofJune 30, 2022 , we had$469.5 million outstanding under these lines of credit with additional capacity to fund settlement of$1.8 billion . During the three months endedJune 30, 2022 , the maximum and average outstanding balances under these lines of credit were$1,084.6 million and$470.1 million , respectively. The weighted-average interest rate on these borrowings was 3.35% atJune 30, 2022 . See "Note 6-Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements for further information about our borrowing agreements.
Update to Critical Accounting Policies
Goodwill - We test goodwill for impairment at the reporting unit level annually and more often if an event occurs or circumstances change that indicate the fair value of a reporting unit may be below its carrying amount. When applying the quantitative assessment, we determine the fair value of our reporting units based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach. The income approach calculates a value based upon the present value of estimated future cash flows, while the market approach uses earnings multiples of similarly situated guideline public companies. Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating margins used to calculate estimated future cash flows, risk-adjusted discount rates and future economic and market conditions. The sustained decline in our share price and recent increases in discount rates, primarily resulting from increased economic uncertainty, indicated a potential decline in fair value and triggered a requirement to evaluate our Issuer Solutions and Business and Consumer Solutions reporting units for potential impairment as ofJune 30, 2022 . Further, the estimated sales price for the consumer business portion of our Business and Consumer Solutions reporting unit also indicated a potential decline in fair value as ofJune 30, 2022 . We determined on the basis of the quantitative assessment that the fair value of the Issuer Solutions reporting unit had declined since our last annual assessment; however, it was still greater than its carrying amount by approximately 4% atJune 30, 2022 , indicating no impairment. Based on the quantitative assessment of the Business and Consumer Solutions reporting unit, including consideration of the consumer business disposal group and the remaining assets of the reporting unit, we recognized a goodwill impairment charge of$833.1 million in our consolidated statement of income for the three and six months endedJune 30, 2022 . We continue to closely monitor developments related to COVID-19 and other global events. The future magnitude, duration and effects of these events are difficult to predict at this time, and it is reasonably possible that future developments could have a negative effect on the estimates and assumptions utilized in our goodwill impairment assessments and could result in material impairment charges in future periods. Intangible and Long-lived Assets - We classify an asset or business as a held for sale disposal group if we have committed to a plan to sell the asset or business within one year and are actively marketing the asset or business in its current condition for a price that is reasonable in comparison to its estimated fair value. Long-lived assets or disposal groups held for sale are reported at the lower of carrying amount or fair value less costs to sell. Long-lived assets classified as held for sale are not subject to depreciation or amortization, and both the assets and any liabilities directly associated with the disposal group are presented within separate held for sale line items in our consolidated balance sheet. Subsequent changes to the estimated selling price of an asset or disposal group held for sale are recorded as gains or losses in our consolidated statement of income and any subsequent gains are limited to the cumulative losses previously recognized.
Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted
From time-to-time, new accounting pronouncements are issued by theFinancial Accounting Standards Board or other standards setting bodies that may affect our current and/or future financial statements. See "Note 1-Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the accompanying unaudited consolidated financial statements for a discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted. Forward-Looking Statements
Some of the statements we use in this report, and in some of the documents we incorporate by reference in this report, contain forward-looking statements concerning our business operations, economic performance and financial condition,
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including in particular: our business strategy and means to implement the
strategy; measures of future results of operations, such as revenues, expenses,
operating margins, income tax rates, and earnings per share; other operating
metrics such as shares outstanding and capital expenditures; the effects of the
COVID-19 pandemic and other general economic conditions on our business;
statements about the strategic rationale and benefits of the proposed
acquisition of EVO Payments, Inc. ("EVO"), including future financial and
operating results, the combined company's plans, objectives, expectation and
intentions and the expected timing of completion of the proposed transaction;
planned divestitures or strategic initiatives; and our success and timing in
developing and introducing new services and expanding our business. You can
sometimes identify forward-looking statements by our use of the words
"believes," "anticipates," "expects," "intends," "plan," "forecast," "guidance"
and similar expressions. For these statements, we claim the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
Although we believe that the plans and expectations reflected in or suggested by
our forward-looking statements are reasonable, those statements are based on a
number of assumptions, estimates, projections or plans that are inherently
subject to significant risks, uncertainties and contingencies, many of which are
beyond our control, cannot be foreseen and reflect future business decisions
that are subject to change. Accordingly, we cannot guarantee that our plans and
expectations will be achieved. Our actual revenues, revenue growth rates and
margins, other results of operations and shareholder values could differ
materially from those anticipated in our forward-looking statements as a result
of many known and unknown factors, many of which are beyond our ability to
predict or control. Important factors, among others, that may otherwise cause
actual events or results to differ materially from those anticipated by such
forward-looking statements or historical performance include the effects of
global economic, political, market, health and social events or other
conditions, including the effects and duration of, and actions taken in response
to, the COVID-19 pandemic and the evolving situation involving Ukraine and
Russia ; foreign currency exchange, inflation and rising interest rate risks;
difficulties, delays and higher than anticipated costs related to integrating
the businesses of acquired companies, including with respect to implementing
controls to prevent a material security breach of any internal systems or to
successfully manage credit and fraud risks in business units; our ability to
complete the proposed transaction with EVO on the proposed terms or on the
proposed timeline, or at all, including risks and uncertainties related to
securing the necessary regulatory and stockholder approvals and the satisfaction
of other closing conditions; the occurrence of any event, change or other
circumstance that could give rise to the termination of the definitive merger
agreement relating to the transaction with EVO; our ability to obtain the
expected financing to the consummate the proposed transaction with EVO; effects
relating to the announcement of the proposed transaction with EVO, including on
the market price of our common stock and our relationships with customers,
employees and suppliers; the risk of potential stockholder litigation associated
with the proposed transaction with EVO; the effect of a security breach or
operational failure on the Company's business; failing to comply with the
applicable requirements of Visa , Mastercard or other payment networks or card
schemes or changes in those requirements; the ability to maintain Visa and
Mastercard registration and financial institution sponsorship; the ability to
retain, develop and hire key personnel; the diversion of management's attention
from ongoing business operations; the continued availability of capital and
financing; increased competition in the markets in which we operate and our
ability to increase our market share in existing markets and expand into new
markets; our ability to safeguard our data; risks associated with our
indebtedness; our ability to meet environmental, social and governance targets,
goals and commitments; the potential effects of climate change, including
natural disasters; the effects of new or changes in current laws, regulations,
credit card association rules or other industry standards on us or our partners
and customers, including privacy and cybersecurity laws and regulations; and
other events beyond our control, and other factors presented in "Item 1A - Risk
Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021
and subsequent filings we make with the SEC , including this Quarterly Report on
Form 10-Q, 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.
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