GPN
$77.84
Global Payments
($.37)
(.47%)
Earnings Details
2nd Quarter November 2016
Monday, January 09, 2017 6:59:01 AM
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Summary

Global Payments Beats

Global Payments (GPN) reported 2nd Quarter November 2016 earnings of $0.94 per share on revenue of $941.8 million. The consensus earnings estimate was $0.85 per share on revenue of $803.6 million. The Earnings Whisper number was $0.88 per share. Revenue grew 30.4% on a year-over-year basis.

The company said it expects fiscal 2017 non-GAAP earnings of $3.70 to $3.90 per share on revenue of $3.35 billion to $3.45 billion. The company's previous guidance was earnings of $3.45 to $3.55 per share on revenue of $3.20 billion to $3.30 billion and the current consensus earnings estimate is $3.51 per share on revenue of $3.24 billion for the year ending May 31, 2017.

Global Payments Inc is a provider of payment solutions for merchants, value-added resellers, enterprise software providers, financial institutions, government agencies, multi-national corporations and independent sales organizations.

Results
Reported Earnings
$0.94
Earnings Whisper
$0.88
Consensus Estimate
$0.85
Reported Revenue
$941.8 Mil
Revenue Estimate
$803.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Global Payments Reports Second Quarter Earnings, Sets Calendar 2017 Growth Targets and Increases Synergy Estimates

Global Payments Inc. (GPN) today announced results for its fiscal second quarter ended November 30, 2016.

"The strong momentum from our first quarter accelerated in the second quarter of fiscal 2017. We delivered double digit organic growth across our key markets, including in our U.S. direct business and across most of Europe and Asia Pacific," said Jeff Sloan, Chief Executive Officer. "Our technology enabled businesses continue to spearhead our growth, with particularly strong performance from our integrated payments businesses, OpenEdge and Ezidebit, and from our software led solutions at Heartland Commerce and Campus Solutions. We achieved these results while also making significant progress integrating Heartland. We have raised our expectations for synergies from the merger, highlighting ongoing strength in execution."

Second Quarter Fiscal 2017 Summary

GAAP revenues were $941.8 million, compared to $722.4 million in the second quarter of fiscal 2016; diluted earnings per share were $0.32 compared to $0.60 in the prior year; and operating margin was 11.2% compared to 17.1% in the second quarter of fiscal 2016.

Adjusted net revenue grew 58% to $817.2 million, compared to $518.3 million in the second quarter of fiscal 2016. On a constant currency basis, adjusted net revenue grew 61%.

Adjusted earnings per share grew 17% to $0.89, compared to $0.76 in the second quarter of fiscal 2016. On a constant currency basis, adjusted earnings per share grew 22%.

Adjusted operating margin was 29.5%. On a constant currency basis, adjusted operating margin was 30.0%, a 50 basis point increase over the second quarter of fiscal 2016.

"We exceeded our expectations for organic adjusted net revenue growth, operating margin expansion and adjusted earnings per share growth for the quarter," stated Cameron Bready, Executive Vice President and Chief Financial Officer. "As a result of this strong performance and momentum, we are introducing accelerated growth expectations for calendar 2017. We are also raising our expectation for expense synergies from the Heartland merger to $135 million, a $10 million increase from our prior target."

Calendar 2017 Outlook

For calendar 2017, the company expects reported adjusted net revenue of $3.35 to $3.45 billion, representing estimated growth of 18% to 21% over our calendar 2016 estimate, or 20% to 24% on a constant currency basis. The company further expects reported adjusted earnings per share of $3.70 to $3.90, which represents estimated growth of 16% to 23% over our calendar 2016 estimate, or 21% to 27% on a constant currency basis. Calendar 2017 adjusted earnings per share expectations represents annualized growth of approximately 17% relative to the company’s last fiscal 2017 guide, or approximately 20% on a constant currency basis.

Capital Allocation

Global Payments’ Board of Directors approved a quarterly dividend of $0.01 per share payable February 24, 2017 to shareholders of record as of February 10, 2017. The board also approved an increase to the existing authorization for the company’s share repurchase program, raising the total available authorization to $300 million.

Conference Call

Global Payments’ management will host a conference call today, January 9, 2017 at 8:00 a.m. ET to discuss financial results and business highlights. Participants may access the conference call via the investor relations page of the company’s website at www.globalpaymentsinc.com; or participants in North America may dial 877-674-6428 and outside North America may dial 970-315-0457. A replay of the call will be archived on the company’s website within two hours of the live call.

Non-GAAP Financial Measures

Global Payments supplemented revenues, income and earnings per share information determined in accordance with GAAP by providing those measures on an adjusted basis in this earnings release to assist with evaluating performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of our operations.

Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the schedules to this release.

About Global Payments

Global Payments Inc. (GPN) is a leading worldwide provider of payment technology services that delivers innovative solutions driven by customer needs globally. Our technologies, partnerships and employee expertise enable us to provide a broad range of products and services that allow our customers to accept all payment types across a variety of distribution channels in many markets around the world.

Headquartered in Atlanta, Georgia with more than 8,500 employees worldwide, Global Payments is a member of the S&P 500 with merchants and partners in 30 countries throughout North America, Europe, the Asia-Pacific region and Brazil. For more information about Global Payments, our Service. Driven. Commerce brand and our technologies, please visit www.globalpaymentsinc.com.

Forward-Looking Statements

This announcement and comments made by Global Payments’ management during the conference call may contain certain forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including revenue 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 potential failure to safeguard our data; 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 merchant, referral partner or ISO attrition; our ability to increase our share of existing markets and expand into new markets; political, economic and regulatory changes in the foreign countries in which we operate; system interruptions in service; increases in credit card network fees; future performance, integration and conversion of acquired operations; and other risk factors presented in our most recent Annual Report on Form 10-K and any subsequent SEC filings, which we advise you to review. 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
Six Months Ended
November 30,
November 30,
%
November 30,
November 30,
%
2016
2015
Change
2016
2015
Change
Revenues
$ 941,821
$ 722,350
30.4 %
$ 1,881,313
$ 1,471,146
27.9 %
Operating expenses:
Cost of service
468,383
270,565
73.1 %
931,009
543,231
71.4 %
Selling, general and administrative
368,171
328,620
12.0 %
723,931
666,978
8.5 %
836,554
599,185
39.6 %
1,654,940
1,210,209
Operating income
105,267
123,165
(14.5 )%
226,373
260,937
(13.2 )%
Interest and other income
1,353
1,292
4.7 %
43,826
2,434
NM
Interest and other expense
(52,448 )
(14,126 )
271.3 %
(95,524 )
(27,369 )
249.0 %
(51,095 )
(12,834 )
298.1 %
(51,698 )
(24,935 )
107.3 %
Income before income taxes
54,172
110,331
(50.9 )%
174,675
236,002
(26.0 )%
Provision for income taxes
(1,557 )
(27,253 )
(94.3 )%
(29,601 )
(59,876 )
(50.6 )%
Net income
52,615
83,078
(36.7 )%
145,074
176,126
(17.6 )%
Less: Net income attributable to noncontrolling interests, net of
(3,163 )
(4,307 )
(26.6 )%
(10,529 )
(10,708 )
(1.7 )%
income tax
Net income attributable to Global Payments
$
49,452
$
78,771
(37.2 )%
$
134,545
$
165,418
(18.7 )%
Earnings per share attributable to Global Payments:
Basic
$
0.32
$
0.61
(47.5 )%
$
0.88
$
1.27
(30.7 )%
Diluted
$
0.32
$
0.60
(46.7 )%
$
0.87
$
1.27
(31.5 )%
Weighted-average number of shares outstanding:
Basic
153,173
129,505
153,539
129,919
Diluted
153,991
130,353
154,435
130,752
NM - Not meaningful.
SCHEDULE 2
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
GLOBAL
PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per
share data)
Three Months Ended
Six Months Ended
November 30,
November 30,
%
November 30,
November 30,
%
2016
2015
Change
2016
2015
Change
Adjusted net revenue
$ 817,188
$ 518,302
57.7
%
$ 1,634,443
$ 1,055,255
54.9
%
Adjusted operating income
$ 240,819
$ 153,208
57.2
%
$
481,536
$
316,776
52.0
%
Adjusted net income
$ 136,618
$
99,501
37.3
%
$
270,300
$
202,530
33.5
%
Adjusted EPS:
$
0.89
$
0.76
17.1
%
$
1.75
$
1.55
12.9
%

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
November 30, 2016
November 30, 2015
% Change
GAAP
Non-GAAP(1)
GAAP
Non-GAAP(1)
GAAP
Non-GAAP(1)
Revenues:
North America
$
701,300
$
604,067
$
511,335
$
325,889
37.2 %
85.4 %
Europe
174,904
147,504
158,016
139,414
10.7 %
5.8 %
Asia-Pacific
65,617
65,617
52,999
52,999
23.8 %
23.8 %
$
941,821
$
817,188
$
722,350
$
518,302
30.4 %
57.7 %
Operating income:
North America
$
105,746
$
181,753
$
79,121
$
93,034
33.7 %
95.4 %
Europe
60,875
68,899
62,012
68,188
(1.8 )%
1.0 %
Asia-Pacific
16,658
19,406
11,857
14,515
40.5 %
33.7 %
Corporate
(78,012 )
(29,239 )
(29,825 )
(22,529 )
161.6 %
29.8 %
$
105,267
$
240,819
$
123,165
$
153,208
(14.5 )%
57.2 %
Six Months Ended
November 30, 2016
November 30, 2015
% Change
GAAP
Non-GAAP(1)
GAAP
Non-GAAP(1)
GAAP
Non-GAAP(1)
Revenues:
North America
$ 1,413,064
$ 1,212,737
$ 1,042,192
$
666,320
35.6 %
82.0 %
Europe
344,469
297,926
326,373
286,354
5.5 %
4.0 %
Asia-Pacific
123,780
123,780
102,581
102,581
20.7 %
20.7 %
$ 1,881,313
$ 1,634,443
$ 1,471,146
$ 1,055,255
27.9 %
54.9 %
Operating income:
North America
$
211,446
$
360,115
$
162,635
$
190,002
30.0 %
89.5 %
Europe
126,414
141,012
134,745
145,219
(6.2 )%
(2.9 )%
Asia-Pacific
30,680
35,895
24,089
28,325
27.4 %
26.7 %
Corporate
(142,167 )
(55,486 )
(60,532 )
(46,770 )
134.9 %
18.6 %
$
226,373
$
481,536
$
260,937
$
316,776
(13.2 )%
52.0 %

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

SCHEDULE 4
UNAUDITED CONSOLIDATED BALANCE SHEETS
GLOBAL
PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except share
data)
November 30, 2016
May 31, 2016
ASSETS
Current assets:
Cash and cash equivalents
$
995,816
$
1,044,728
Accounts receivable, net of allowances for doubtful accounts of $294
266,245
281,612
and $353, respectively
Claims receivable, net of allowances for doubtful accounts of $4,771
8,772
6,799
and $4,868, respectively
Settlement processing assets
1,117,666
1,336,326
Prepaid expenses and other current assets
186,464
181,848
Total current assets
2,574,963
2,851,313
Goodwill
4,823,756
4,829,405
Other intangible assets, net
2,115,842
2,264,708
Property and equipment, net
520,714
493,678
Deferred income taxes
20,419
22,719
Other
57,420
48,129
Total assets
$ 10,113,114
$ 10,509,952
LIABILITIES AND EQUITY
Current liabilities:
Settlement lines of credit
$
467,293
$
378,436
Current portion of long-term debt
177,759
135,542
Accounts payable and accrued liabilities
681,356
696,414
Settlement processing obligations
883,447
1,220,315
Total current liabilities
2,209,855
2,430,707
Long-term debt
4,316,391
4,379,744
Deferred income taxes
695,258
744,862
Other noncurrent liabilities
89,773
77,235
Total liabilities
7,311,277
7,632,548
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;
--
--
152,267,428 issued and outstanding at November 30, 2016 and
154,421,585 issued and outstanding at May 31, 2016
Paid-in capital
1,818,487
1,976,715
Retained earnings
1,146,844
1,015,811
Accumulated other comprehensive loss
(309,717 )
(246,050 )
Total Global Payments shareholders’ equity
2,655,614
2,746,476
Noncontrolling interests
146,223
130,928
Total equity
2,801,837
2,877,404
Total liabilities and equity
$ 10,113,114
$ 10,509,952
SCHEDULE 5
UNAUDITED CONSOLIDATED STATEMENTS OF
CASH FLOWS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In
thousands)
Six Months Ended
November 30,
November 30,
2016
2015
Cash flows from operating activities:
Net income
$ 145,074
$ 176,126
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of property and equipment
45,681
35,697
Amortization of acquired intangibles
166,188
41,809
Share-based compensation expense
16,366
13,472
Provision for operating losses and bad debts
19,024
11,257
Amortization of capitalized customer acquisition costs
12,291
--
Deferred income taxes
(52,710 )
2,900
Gain on sale of investments
(41,150 )
--
Other, net
18,784
2,198
Changes in operating assets and liabilities, net of the effects of
acquisitions:
Accounts receivable
9,693
(4,271 )
Claims receivable
(14,067 )
(18,723 )
Settlement processing assets and obligations, net
(113,359 )
208,446
Prepaid expenses and other assets
(5,846 )
(14,097 )
Accounts payable and other liabilities
(12,426 )
(744 )
Net cash provided by operating activities
193,543
454,070
Cash flows from investing activities:
Business acquisitions, net of cash acquired
(35,260 )
(241,934 )
Capital expenditures
(83,268 )
(36,246 )
Proceeds from sale of investments
37,717
--
Net cash used in investing activities
(80,811 )
(278,180 )
Cash flows from financing activities:
Net borrowings on settlement lines of credit
94,757
101,464
Proceeds from issuance of long-term debt
1,289,000
3,030,175
Principal payments of long-term debt
(1,314,799 )
(2,852,175 )
Payment of debt issuance costs
(9,279 )
(4,934 )
Repurchase of common stock
(172,405 )
(71,748 )
Proceeds from stock issued under share-based compensation plans
4,882
6,317
Common stock repurchased - share-based compensation plans
(20,390 )
(11,579 )
Tax benefit from share-based compensation plans
13,017
6,521
Purchase of subsidiary shares from noncontrolling interest
--
(7,550 )
Distributions to noncontrolling interests
(12,365 )
(8,158 )
Dividends paid
(3,069 )
(2,602 )
Net cash (used in) provided by financing activities
(130,651 )
185,731
Effect of exchange rate changes on cash
(30,993 )
(23,903 )
(Decrease) increase in cash and cash equivalents
(48,912 )
337,718
Cash and cash equivalents, beginning of the period
1,044,728
650,739
Cash and cash equivalents, end of the period
$ 995,816
$ 988,457
SCHEDULE 6
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO GAAP MEASURES (UNAUDITED)
THREE MONTHS ENDED
NOVEMBER 30, 2016 AND 2015
GLOBAL PAYMENTS INC. AND
SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended November 30, 2016
GAAP
Net Revenue
Earnings
Income Taxes on
Non-GAAP
Adjustments(1)
Adjustments(2)
Adjustments(3)
Revenues
$ 941,821
$
(124,633 )
$ --
$ --
$
817,188
Operating income
$ 105,267
$ --
$
135,552
$ --
$
240,819
Net income attributable to Global Payments
$
49,452
$ --
$
141,499
$
(54,333 )
$
136,618
Diluted earnings per share attributable to Global Payments(4)
$
0.32
$
0.89
Three Months Ended November 30, 2015
GAAP
Net Revenue
Earnings
Income Taxes on
Non-GAAP
Adjustments(1)
Adjustments(2)
Adjustments(3)
Revenues
$ 722,350
$
(204,048 )
$ --
$ --
$
518,302
Operating income
$ 123,165
$ --
$
30,043
$ --
$
153,208
Net income attributable to Global Payments
$
78,771
$ --
$
29,114
$
(8,384 )
$
99,501
Diluted earnings per share attributable to Global Payments(4)
$
0.60
$
0.76

(1)Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

(2)Earnings adjustments to operating income for the three months ended November 30, 2016 include $86.5 million and $49.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $86.2 million and employee termination expenses of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.7 million, merger-related costs of $36.6 million, litigation settlement of $2.7 million and employee termination expenses of $1.0 million. Net income attributable to Global Payments also reflects an adjustment for a non-cash charge of $8.2 million for previously deferred issuance costs written off in connection with the refinancing of our corporate debt.

Earnings adjustments to operating income for the three months ended November 30, 2015 include $21.7 million and $8.3 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $21.5 million and other adjustments of $0.2 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $7.0 million and $1.3 million of other adjustments.

(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. Income tax adjustments for the three months ended November 30, 2016 include the removal of a $5.1 million tax benefit associated with a change in estimate of certain U.S. inclusion items relating to the gain on sale of Visa Europe.

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

See "Non-GAAP Financial Measures" discussion on Schedule 10.

SCHEDULE 7
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES TO GAAP MEASURES (UNAUDITED)
SIX MONTHS ENDED
NOVEMBER 30, 2016 AND 2015
GLOBAL PAYMENTS INC. AND
SUBSIDIARIES
(In thousands, except per share data)
Six Months Ended November 30, 2016
GAAP
Net Revenue
Earnings
Income Taxes on
Non-GAAP
Adjustments(1)
Adjustments(2)
Adjustments(3)
Revenues
$ 1,881,313
$
(246,870 )
$ --
$ --
$
1,634,443
Operating income
$
226,373
$ --
$
255,163
$ --
$
481,536
Net income attributable to Global Payments
$
134,545
$ --
$
218,490
$
(82,735 )
$
270,300
Diluted earnings per share attributable to Global Payments(4)
$
0.87
$
1.75
Six Months Ended November 30, 2015
GAAP
Net Revenue
Earnings
Income Taxes on
Non-GAAP
Adjustments(1)
Adjustments(2)
Adjustments(3)
Revenues
$ 1,471,146
$
(415,891 )
$ --
$ --
$
1,055,255
Operating income
$
260,937
$ --
$
55,839
$ --
$
316,776
Net income attributable to Global Payments
$
165,418
$ --
$
54,032
$
(16,920 )
$
202,530
Diluted earnings per share attributable to Global Payments(4)
$
1.27
$
1.55

(1)Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

(2)Earnings adjustments to operating income for the six months ended November 30, 2016 include $168.2 million and $87.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $167.3 million and employee termination expenses of $0.9 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $16.1 million, merger-related costs of $67.2 million, litigation settlement of $2.7 million and employee termination expenses of $1.0 million. Net income attributable to Global Payments also reflects an adjustment of $41.2 million to remove a gain on the sale of membership interests in Visa Europe and an adjustment for a non-cash charge of $8.2 million for previously deferred issuance costs written off in connection with the refinancing of our corporate debt.

Earnings adjustments to operating income for the six months ended November 30, 2015 include $41.0 million and $14.8 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $42.9 million and offsetting other adjustments of $1.9 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $13.5 million and $1.3 million of other adjustments.

(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.

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

See "Non-GAAP Financial Measures" discussion on Schedule 10.

SCHEDULE 8
RECONCILIATION OF SEGMENT NON-GAAP
FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)
THREE
MONTHS ENDED NOVEMBER 30, 2016 AND 2015
GLOBAL PAYMENTS INC.
AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended November 30, 2016
Three Months Ended November 30, 2015
GAAP
Net Revenue
Earnings
Non-GAAP
GAAP
Net Revenue
Earnings
Non-GAAP
Adjustments(1)
Adjustments(2)
Adjustments(1)
Adjustments(2)
Revenues:
North America
$ 701,300
$
(97,233 )
$ --
$ 604,067
$ 511,335
$
(185,446 )
$ --
$ 325,889
Europe
174,904
(27,400 )
--
147,504
158,016
(18,602 )
--
139,414
Asia-Pacific
65,617
--
--
65,617
52,999
--
--
52,999
$ 941,821
$
(124,633 )
$ --
$ 817,188
$ 722,350
$
(204,048 )
$ --
$ 518,302
Operating income:
North America
$ 105,746
$ --
$
76,007
$ 181,753
$
79,121
$ --
$
13,913
$
93,034
Europe
60,875
--
8,024
68,899
62,012
--
6,176
68,188
Asia-Pacific
16,658
--
2,748
19,406
11,857
--
2,658
14,515
Corporate
(78,012 )
--
48,773
(29,239 )
(29,825 )
--
7,296
(22,529 )
$ 105,267
$ --
$
135,552
$ 240,819
$ 123,165
$ --
$
30,043
$ 153,208

(1)Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

(2)Earnings adjustments to operating income for the three months ended November 30, 2016 include $86.5 million and $49.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $86.2 million and employee termination expenses of $0.3 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $8.7 million, merger-related costs of $36.6 million, litigation settlement of $2.7 million and employee termination expenses of $1.0 million.

Earnings adjustments to operating income for the three months ended November 30, 2015 include $21.7 million and $8.3 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $21.5 million and other adjustments of $0.2 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $7.0 million and $1.3 million of other adjustments.

See "Non-GAAP Financial Measures" discussion on Schedule 10.

SCHEDULE 9
RECONCILIATION OF SEGMENT NON-GAAP
FINANCIAL MEASURES TO GAAP MEASURES (UNAUDITED)
SIX
MONTHS ENDED NOVEMBER 30, 2016 AND 2015
GLOBAL PAYMENTS INC.
AND SUBSIDIARIES
(In thousands, except per share data)
Six Months Ended November 30,
2016
2015
GAAP
Net Revenue
Earnings
Non-GAAP
GAAP
Net Revenue
Earnings
Non-GAAP
Adjustments(1)
Adjustments(2)
Adjustments(1)
Adjustments(2)
Revenues:
North America
$ 1,413,064
$
(200,327 )
$ --
$ 1,212,737
$ 1,042,192
$
(375,872 )
$ --
$
666,320
Europe
344,469
(46,543 )
--
297,926
326,373
(40,019 )
--
286,354
Asia-Pacific
123,780
--
--
123,780
102,581
--
--
102,581
$ 1,881,313
$
(246,870 )
$ --
$ 1,634,443
$ 1,471,146
$
(415,891 )
$ --
$ 1,055,255
Operating income:
North America
$
211,446
$ --
$
148,669
$
360,115
$
162,635
$ --
$
27,367
$
190,002
Europe
126,414
--
14,598
141,012
134,745
--
10,474
145,219
Asia-Pacific
30,680
--
5,215
35,895
24,089
--
4,236
28,325
Corporate
(142,167 )
--
86,681
(55,486 )
(60,532 )
--
13,762
(46,770 )
$
226,373
$ --
$
255,163
$
481,536
$
260,937
$ --
$
55,839
$
316,776

(1)Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

(2)Earnings adjustments to operating income for the six months ended November 30, 2016 include $168.2 million and $87.0 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service include amortization of acquired intangibles of $167.3 million and employee termination expenses of $0.9 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $16.1 million, merger-related costs of $67.2 million, litigation settlement of $2.7 million and employee termination expenses of $1.0 million.

Earnings adjustments to operating income for the six months ended November 30, 2015 include $41.0 million and $14.8 million in cost of service and selling, general and administrative expenses, respectively. Adjustments to cost of service represent amortization of acquired intangibles of $42.9 million and offsetting other adjustments of $1.9 million. Adjustments to selling, general and administrative expenses include share-based compensation expense of $13.5 million and $1.3 million of other adjustments.

See "Non-GAAP Financial Measures" discussion on Schedule 10.

SCHEDULE 10
OUTLOOK SUMMARY (UNAUDITED)
GLOBAL
PAYMENTS INC. AND SUBSIDIARIES
(In billions, except per
share data)
Calendar 2017 Outlook
Revenues:
GAAP revenue
$3.76 to $3.86
Adjustments(1)
(0.41)
Adjusted net revenue
$3.35 to $3.45
Earnings Per Share ("EPS"):
GAAP diluted EPS
$2.20 to $2.40
Acquisition-related amortization expense, share-based compensation
1.50
expense and non-recurring items
Adjusted EPS
$3.70 to $3.90

(1)Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the company.

NON-GAAP FINANCIAL MEASURES

Global Payments supplements revenues, income and earnings per share ("EPS") information determined in accordance with U.S. GAAP by providing these measures with certain adjustments (such measures being non-GAAP financial measures) in this document to assist with evaluating our performance. In addition to GAAP measures, management uses these non-GAAP financial measures to focus on the factors the company believes are pertinent to the daily management of our operations. Management believes adjusted net revenue more closely reflects the economic benefits to the company’s core business and allows for better comparisons with industry peers. Management uses these non-GAAP financial measures, together with other metrics, to set goals for and measure the performance of the business and to determine incentive compensation. Adjusted net revenue, adjusted operating income, adjusted net income and adjusted EPS should be considered in addition to, and not as substitutes for, revenues, operating income, net income and EPS determined in accordance with GAAP. The non-GAAP financial measures reflect management’s judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.

Adjusted net revenue excludes gross-up related payments associated with certain wholesale lines of business to reflect economic benefits to the company. On a GAAP basis, these payments are presented gross in both revenues and operating expenses.

Adjusted operating income, adjusted net income and adjusted EPS exclude acquisition-related amortization expense, share-based compensation and certain other items specific to each reporting period as more fully described in the accompanying reconciliations in Schedules 6, 7, 8 and 9. The tax rate used in determining the net income impact of earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.

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SOURCE: Global Payments Inc.

Global Payments Inc.
Investor contact:
Isabel Janci, 770-829-8478
investor.relations@globalpay.com
or
Media contact:
Amy Corn, 770-829-8755
media.relations@globalpay.com