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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | | | | |
☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
OR
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☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-16111
GLOBAL PAYMENTS INC.
(Exact name of registrant as specified in charter)
| | | | | | | | |
Georgia | | 58-2567903 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | | | | | | | | | | |
3550 Lenox Road, Atlanta, Georgia | | 30326 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (770) 829-8000
| | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act |
Title of each class | Trading symbol | Name of exchange on which registered |
Common stock, no par value | GPN | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☑ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of the issuer’s common stock, no par value, outstanding as of July 28, 2021 was 293,748,093.
GLOBAL PAYMENTS INC.
FORM 10-Q
For the quarterly period ended June 30, 2021
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | Page |
PART I - FINANCIAL INFORMATION |
ITEM 1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
ITEM 2. | | | |
ITEM 3. | | | |
ITEM 4. | | | |
PART II - OTHER INFORMATION |
ITEM 1. | | | |
ITEM 2. | | | |
ITEM 6. | | | |
| | | |
PART I - FINANCIAL INFORMATION
ITEM 1—FINANCIAL STATEMENTS
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| | | | | | | | | | | |
| Three Months Ended |
| June 30, 2021 | | June 30, 2020 |
| | | |
Revenues | $ | 2,137,437 | | | $ | 1,671,952 | |
Operating expenses: | | | |
Cost of service | 936,310 | | | 893,740 | |
Selling, general and administrative | 838,569 | | | 670,638 | |
| 1,774,879 | | | 1,564,378 | |
Operating income | 362,558 | | | 107,574 | |
| | | |
Interest and other income | 5,455 | | | 2,787 | |
Interest and other expense | (80,556) | | | (82,855) | |
| (75,101) | | | (80,068) | |
Income before income taxes and equity in income of equity method investments | 287,457 | | | 27,506 | |
Income tax expense | 60,808 | | | 836 | |
Income before equity in income of equity method investments | 226,649 | | | 26,670 | |
Equity in income of equity method investments, net of tax | 40,164 | | | 12,774 | |
Net income | 266,813 | | | 39,444 | |
Net income attributable to noncontrolling interests, net of tax | (3,223) | | | (2,113) | |
Net income attributable to Global Payments | $ | 263,590 | | | $ | 37,331 | |
| | | |
Earnings per share attributable to Global Payments: | | | |
Basic earnings per share | $ | 0.89 | | | $ | 0.12 | |
Diluted earnings per share | $ | 0.89 | | | $ | 0.12 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
| | | |
Revenues | $ | 4,127,444 | | | $ | 3,575,550 | |
Operating expenses: | | | |
Cost of service | 1,861,556 | | | 1,827,611 | |
Selling, general and administrative | 1,628,071 | | | 1,396,386 | |
| 3,489,627 | | | 3,223,997 | |
Operating income | 637,817 | | | 351,553 | |
| | | |
Interest and other income | 9,689 | | | 5,293 | |
Interest and other expense | (163,697) | | | (175,499) | |
| (154,008) | | | (170,206) | |
Income before income taxes and equity in income of equity method investments | 483,809 | | | 181,347 | |
Income tax expense | 81,483 | | | 16,338 | |
Income before equity in income of equity method investments | 402,326 | | | 165,009 | |
Equity in income of equity method investments, net of tax | 62,897 | | | 25,041 | |
Net income | 465,223 | | | 190,050 | |
Net income attributable to noncontrolling interests, net of tax | (4,952) | | | (9,147) | |
Net income attributable to Global Payments | $ | 460,271 | | | $ | 180,903 | |
| | | |
Earnings per share attributable to Global Payments: | | | |
Basic earnings per share | $ | 1.56 | | | $ | 0.60 | |
Diluted earnings per share | $ | 1.55 | | | $ | 0.60 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | |
| Three Months Ended |
| June 30, 2021 | | June 30, 2020 |
| | | |
Net income | $ | 266,813 | | | $ | 39,444 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments | 32,671 | | | 82,458 | |
Income tax benefit related to foreign currency translation adjustments | 4,242 | | | 154 | |
Net unrealized losses on hedging activities | (410) | | | (5,630) | |
Reclassification of net unrealized losses on hedging activities to interest expense | 9,662 | | | 9,982 | |
Income tax expense related to hedging activities | (2,225) | | | (1,057) | |
Other, net of tax | (1,549) | | | 122 | |
Other comprehensive income | 42,391 | | | 86,029 | |
| | | |
Comprehensive income | 309,204 | | | 125,473 | |
Comprehensive income attributable to noncontrolling interests | (5,948) | | | (7,508) | |
Comprehensive income attributable to Global Payments | $ | 303,256 | | | $ | 117,965 | |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
| | | |
Net income | $ | 465,223 | | | $ | 190,050 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments | (895) | | | (121,653) | |
Income tax benefit related to foreign currency translation adjustments | 4,991 | | | 1,160 | |
Net unrealized gains (losses) on hedging activities | 584 | | | (53,526) | |
Reclassification of net unrealized losses on hedging activities to interest expense | 20,500 | | | 14,653 | |
Income tax (expense) benefit related to hedging activities | (5,089) | | | 9,289 | |
Other, net of tax | 6,226 | | | 243 | |
Other comprehensive income (loss) | 26,317 | | | (149,834) | |
| | | |
Comprehensive income | 491,540 | | | 40,216 | |
Comprehensive income attributable to noncontrolling interests | (1,703) | | | (7,888) | |
Comprehensive income attributable to Global Payments | $ | 489,837 | | | $ | 32,328 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,799,549 | | | $ | 1,945,868 | |
Accounts receivable, net | 878,431 | | | 794,172 | |
Settlement processing assets | 1,548,743 | | | 1,230,853 | |
Prepaid expenses and other current assets | 673,154 | | | 621,467 | |
Total current assets | 4,899,877 | | | 4,592,360 | |
Goodwill | 24,422,012 | | | 23,871,451 | |
Other intangible assets, net | 11,815,103 | | | 12,015,883 | |
Property and equipment, net | 1,642,283 | | | 1,578,532 | |
Deferred income taxes | 8,094 | | | 7,627 | |
Other noncurrent assets | 2,362,304 | | | 2,135,692 | |
Total assets | $ | 45,149,673 | | | $ | 44,201,545 | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Settlement lines of credit | $ | 487,538 | | | $ | 358,698 | |
Current portion of long-term debt | 52,611 | | | 827,357 | |
Accounts payable and accrued liabilities | 2,184,201 | | | 2,061,384 | |
Settlement processing obligations | 1,655,278 | | | 1,301,652 | |
Total current liabilities | 4,379,628 | | | 4,549,091 | |
Long-term debt | 10,216,979 | | | 8,466,407 | |
Deferred income taxes | 2,873,676 | | | 2,948,390 | |
Other noncurrent liabilities | 829,250 | | | 750,613 | |
Total liabilities | 18,299,533 | | | 16,714,501 | |
Commitments and contingencies | | | |
Equity: | | | |
Preferred stock, no par value; 5,000,000 shares authorized and none issued | — | | | — | |
Common stock, no par value; 400,000,000 shares authorized at June 30, 2021 and December 31, 2020; 293,702,910 issued and outstanding at June 30, 2021 and 298,332,459 issued and outstanding at December 31, 2020 | — | | | — | |
Paid-in capital | 24,201,763 | | | 24,963,769 | |
Retained earnings | 2,664,707 | | | 2,570,874 | |
Accumulated other comprehensive loss | (172,707) | | | (202,273) | |
Total Global Payments shareholders’ equity | 26,693,763 | | | 27,332,370 | |
Noncontrolling interests | 156,377 | | | 154,674 | |
Total equity | 26,850,140 | | | 27,487,044 | |
Total liabilities and equity | $ | 45,149,673 | | | $ | 44,201,545 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2021 | | June 30, 2020 |
Cash flows from operating activities: | | | |
Net income | $ | 465,223 | | | $ | 190,050 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of property and equipment | 193,574 | | | 172,229 | |
Amortization of acquired intangibles | 654,042 | | | 628,264 | |
Amortization of capitalized contract costs | 43,975 | | | 38,070 | |
Share-based compensation expense | 80,490 | | | 62,805 | |
Provision for operating losses and credit losses | 50,802 | | | 66,921 | |
Noncash lease expense | 54,533 | | | 47,770 | |
Deferred income taxes | (91,177) | | | (96,458) | |
Equity in income of equity investments, net of tax | (62,897) | | | (25,041) | |
Other, net | 13,965 | | | 10,823 | |
Changes in operating assets and liabilities, net of the effects of business combinations: | | | |
Accounts receivable | (91,580) | | | 56,186 | |
Settlement processing assets and obligations, net | 25,312 | | | 136,453 | |
Prepaid expenses and other assets | (151,353) | | | (97,653) | |
Accounts payable and other liabilities | (75,268) | | | (230,130) | |
Net cash provided by operating activities | 1,109,641 | | | 960,289 | |
Cash flows from investing activities: | | | |
Business combinations and other acquisitions, net of cash acquired | (943,108) | | | (74,095) | |
Capital expenditures | (219,579) | | | (208,384) | |
Other, net | 742 | | | 12,188 | |
Net cash used in investing activities | (1,161,945) | | | (270,291) | |
Cash flows from financing activities: | | | |
Net borrowings from (repayments of) settlement lines of credit | 134,245 | | | (25,546) | |
Proceeds from long-term debt | 2,820,988 | | | 1,867,008 | |
Repayments of long-term debt | (1,830,258) | | | (1,809,199) | |
Payments of debt issuance costs | (8,569) | | | (8,006) | |
Repurchases of common stock | (1,072,934) | | | (421,162) | |
Proceeds from stock issued under share-based compensation plans | 29,304 | | | 42,632 | |
Common stock repurchased - share-based compensation plans | (49,664) | | | (39,226) | |
Dividends paid | (114,875) | | | (116,591) | |
Net cash used in financing activities | (91,763) | | | (510,090) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (5,980) | | | (32,556) | |
(Decrease) increase in cash, cash equivalents and restricted cash | (150,047) | | | 147,352 | |
Cash, cash equivalents and restricted cash, beginning of the period | 2,089,771 | | | 1,678,273 | |
Cash, cash equivalents and restricted cash, end of the period | $ | 1,939,724 | | | $ | 1,825,625 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at March 31, 2021 | 295,158 | | | $ | 24,403,323 | | | $ | 2,500,812 | | | $ | (212,373) | | | $ | 26,691,762 | | | $ | 150,429 | | | $ | 26,842,191 | |
Net income | | | | | 263,590 | | | | | 263,590 | | | 3,223 | | | 266,813 | |
Other comprehensive income | | | | | | | 39,666 | | | 39,666 | | | 2,725 | | | 42,391 | |
Stock issued under share-based compensation plans | 78 | | | 11,599 | | | | | | | 11,599 | | | | | 11,599 | |
Common stock repurchased - share-based compensation plans | (31) | | | (8,900) | | | | | | | (8,900) | | | | | (8,900) | |
Share-based compensation expense | | | 43,325 | | | | | | | 43,325 | | | | | 43,325 | |
Repurchases of common stock | (1,502) | | | (247,584) | | | (42,393) | | | | | (289,977) | | | | | (289,977) | |
Cash dividends declared ($0.195 per common share) | | | | | (57,302) | | | | | (57,302) | | | | | (57,302) | |
Balance at June 30, 2021 | 293,703 | | | $ | 24,201,763 | | | $ | 2,664,707 | | | $ | (172,707) | | | $ | 26,693,763 | | | $ | 156,377 | | | $ | 26,850,140 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at March 31, 2020 | 299,010 | | | $ | 25,525,184 | | | $ | 2,335,407 | | | $ | (539,780) | | | $ | 27,320,811 | | | $ | 199,622 | | | $ | 27,520,433 | |
Net income | | | | | 37,331 | | | | | 37,331 | | | 2,113 | | | 39,444 | |
Other comprehensive income | | | | | | | 80,634 | | | 80,634 | | | 5,395 | | | 86,029 | |
Stock issued under share-based compensation plans | 257 | | | 14,349 | | | | | | | 14,349 | | | | | 14,349 | |
Common stock repurchased - share-based compensation plans | (23) | | | (3,934) | | | | | | | (3,934) | | | | | (3,934) | |
Share-based compensation expense | | | 34,983 | | | | | | | 34,983 | | | | | 34,983 | |
Cash dividends declared ($0.195 per common share) | | | | | (58,315) | | | | | (58,315) | | | | | (58,315) | |
Balance at June 30, 2020 | 299,244 | | | $ | 25,570,582 | | | $ | 2,314,423 | | | $ | (459,146) | | | $ | 27,425,859 | | | $ | 207,130 | | | $ | 27,632,989 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2020 | 298,332 | | | $ | 24,963,769 | | | $ | 2,570,874 | | | $ | (202,273) | | | $ | 27,332,370 | | | $ | 154,674 | | | $ | 27,487,044 | |
Net income | | | | | 460,271 | | | | | 460,271 | | | 4,952 | | | 465,223 | |
Other comprehensive income (loss) | | | | | | | 29,566 | | | 29,566 | | | (3,249) | | | 26,317 | |
Stock issued under share-based compensation plans | 1,081 | | | 29,304 | | | | | | | 29,304 | | | | | 29,304 | |
Common stock repurchased - share-based compensation plans | (253) | | | (50,429) | | | | | | | (50,429) | | | | | (50,429) | |
Share-based compensation expense | | | 80,490 | | | | | | | 80,490 | | | | | 80,490 | |
Repurchases of common stock | (5,457) | | | (821,371) | | | (251,563) | | | | | (1,072,934) | | | | | (1,072,934) | |
Cash dividends declared ($0.39 per common share) | | | | | (114,875) | | | | | (114,875) | | | | | (114,875) | |
Balance at June 30, 2021 | 293,703 | | | $ | 24,201,763 | | | $ | 2,664,707 | | | $ | (172,707) | | | $ | 26,693,763 | | | $ | 156,377 | | | $ | 26,850,140 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2019 | 300,226 | | | $ | 25,833,307 | | | $ | 2,333,011 | | | $ | (310,571) | | | $ | 27,855,747 | | | $ | 199,242 | | | $ | 28,054,989 | |
Cumulative effect of adoption of new accounting standard | | | | | (5,379) | | | | | (5,379) | | | | | (5,379) | |
Net income | | | | | 180,903 | | | | | 180,903 | | | 9,147 | | | 190,050 | |
Other comprehensive loss | | | | | | | (148,575) | | | (148,575) | | | (1,259) | | | (149,834) | |
Stock issued under share-based compensation plans | 1,339 | | | 42,632 | | | | | | | 42,632 | | | | | 42,632 | |
Common stock repurchased - share-based compensation plans | (226) | | | (41,721) | | | | | | | (41,721) | | | | | (41,721) | |
Share-based compensation expense | | | 62,805 | | | | | | | 62,805 | | | | | 62,805 | |
Repurchase of common stock | (2,095) | | | (326,441) | | | (77,521) | | | | | (403,962) | | | | | (403,962) | |
Cash dividends declared ($0.39 per common share) | | | | | (116,591) | | | | | (116,591) | | | | | (116,591) | |
Balance at June 30, 2020 | 299,244 | | | $ | 25,570,582 | | | $ | 2,314,423 | | | $ | (459,146) | | | $ | 27,425,859 | | | $ | 207,130 | | | $ | 27,632,989 | |
See Notes to Unaudited Consolidated Financial Statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business, consolidation and presentation - 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 operate in three reportable segments: Merchant Solutions, Issuer Solutions and Business and Consumer Solutions, which are described in "Note 12—Segment Information." Global Payments Inc. and its consolidated subsidiaries are referred to herein collectively as "Global Payments," the "Company," "we," "our" or "us," unless the context requires otherwise.
These unaudited consolidated financial statements include our accounts and those of our majority-owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated balance sheet as of December 31, 2020 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 but does not include all disclosures required by GAAP for annual financial statements.
In the opinion of our management, all known adjustments necessary for a fair presentation of the results of the interim periods have been made. These adjustments consist of normal recurring accruals and estimates that affect the carrying amount of assets and liabilities. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.
COVID-19 Update - Since early 2020, the global economy has been, and continues to be, affected by COVID-19. The pandemic has caused and may continue to cause significant disruptions to businesses and markets worldwide as the virus spreads or has a resurgence in certain jurisdictions. Measures have been implemented by governments worldwide in an effort to contain the virus, including lockdowns, physical distancing, travel restrictions, limitations on public gatherings, work from home and restrictions on nonessential businesses. Certain government actions to gradually ease restrictions, provide economic stimulus and distribute vaccines have resulted in signs of economic recovery. However, the effects of the pandemic continue, and its ultimate severity and duration, and the implications on future global economic conditions, remain uncertain.
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. In particular, the future magnitude, duration and effects of the COVID-19 pandemic are difficult to predict at this time, and the ultimate effect could result in additional charges related to the recoverability of assets, including financial assets, long-lived assets and goodwill and other losses. These unaudited consolidated financial statements reflect the financial statement effects of COVID-19 based upon management’s estimates and assumptions utilizing the most currently available information.
Recently adopted accounting pronouncements
Accounting Standards Update ("ASU") 2019-12 — In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistency in application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. The adoption of ASU 2019-12 on January 1, 2021 did not have a material effect on our consolidated financial statements.
Recently issued pronouncements not yet adopted
ASU 2020-04 — In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients and which are retained through the end of the hedging relationship. The amendments in this update also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. If elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant ASC Topic or Industry Subtopic that contains the guidance that otherwise would be required to be applied. The amendments in this update were effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. A portion of our indebtedness bears interest at a variable rate based on LIBOR. Furthermore, we have entered into hedging instruments to manage our exposure to fluctuations in the LIBOR benchmark interest rate. We are evaluating the effect of the discontinuance of LIBOR on our outstanding debt and hedging instruments and the related effect of ASU 2020-04 on our consolidated financial statements.
NOTE 2—ACQUISITION
On June 10, 2021, we acquired Zego, a real estate technology company that provides a comprehensive resident experience management software and digital commerce solutions to property managers, primarily in the United States. Zego’s real estate software and payments solutions support property managers and residents throughout the real estate lifecycle. This acquisition aligns with our technology-enabled, software driven strategy and expands our business into a new vertical market. We paid cash consideration of approximately $933 million, which we funded with cash on hand and by drawing on our revolving credit facility.
This transaction was accounted for as a business combination, which generally requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date. Due to the timing of the acquisition, the accounting for this acquisition was not complete as of June 30, 2021. The fair values of the assets acquired and the liabilities assumed have been determined provisionally and are subject to adjustment as we obtain additional information. In particular, additional time is needed to refine and review the results of the valuation of assets and liabilities and to evaluate the basis differences for assets and liabilities for financial reporting and tax purposes.
The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase consideration, are as follows (in thousands):
| | | | | |
Cash and cash equivalents | $ | 67,374 | |
Accounts receivable | 1,033 | |
Identifiable intangible assets | 410,443 | |
Property and equipment | 3,634 | |
Other assets | 9,141 | |
Accounts payable and accrued liabilities | (65,753) | |
Deferred income tax liabilities | (10,709) | |
Other liabilities | (8,268) | |
Total identifiable net assets | 406,895 | |
Goodwill | 525,929 | |
Total purchase consideration | $ | 932,824 | |
Goodwill of $525.9 million arising from the acquisition, included in the Merchant Solutions operating segment, is attributable to expected growth opportunities, potential synergies from combining our existing businesses and an assembled workforce. We expect that a portion of the goodwill will be deductible for income tax purposes.
We are still evaluating information to separately identify and value the intangible assets acquired. We expect such assets to primarily include customer-related intangible assets and acquired technology as well as other identifiable intangible assets that are similar to those we have identified in previous acquisitions. We estimate the amortization periods for the more significant intangible assets to be in a range of 7 to 14 years.
NOTE 3—REVENUES
The following tables present a disaggregation of our revenues from contracts with customers by geography for each of our reportable segments for the three and six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Merchant Solutions | | Issuer Solutions | | Business and Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 1,202,970 | | | $ | 379,121 | | | $ | 224,529 | | | $ | (16,768) | | | $ | 1,789,852 | |
Europe | 166,644 | | | 120,974 | | | 2,826 | | | — | | | 290,444 | |
Asia Pacific | 57,141 | | | 5,837 | | | — | | | (5,837) | | | 57,141 | |
| $ | 1,426,755 | | | $ | 505,932 | | | $ | 227,355 | | | $ | (22,605) | | | $ | 2,137,437 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Merchant Solutions | | Issuer Solutions | | Business and Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 862,927 | | | $ | 363,140 | | | $ | 216,722 | | | $ | (14,728) | | | $ | 1,428,061 | |
Europe | 102,460 | | | 105,263 | | | — | | | — | | | 207,723 | |
Asia Pacific | 36,168 | | | 1,622 | | | — | | | (1,622) | | | 36,168 | |
| $ | 1,001,555 | | | $ | 470,025 | | | $ | 216,722 | | | $ | (16,350) | | | $ | 1,671,952 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| Merchant Solutions | | Issuer Solutions | | Business and Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 2,283,440 | | | $ | 757,164 | | | $ | 465,163 | | | $ | (33,673) | | | $ | 3,472,094 | |
Europe | 299,578 | | | 238,386 | | | 5,778 | | | — | | | 543,742 | |
Asia Pacific | 111,609 | | | 10,633 | | | — | | | (10,634) | | | 111,608 | |
| $ | 2,694,627 | | | $ | 1,006,183 | | | $ | 470,941 | | | $ | (44,307) | | | $ | 4,127,444 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| Merchant Solutions | | Issuer Solutions | | Business and Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 1,887,433 | | | $ | 756,893 | | | $ | 420,668 | | | $ | (32,461) | | | $ | 3,032,533 | |
Europe | 238,459 | | | 213,626 | | | — | | | — | | | 452,085 | |
Asia Pacific | 90,932 | | | 3,268 | | | — | | | (3,268) | | | 90,932 | |
| $ | 2,216,824 | | | $ | 973,787 | | | $ | 420,668 | | | $ | (35,729) | | | $ | 3,575,550 | |
The following table presents a disaggregation of our Merchant Solutions segment revenues by distribution channel for the three and six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2021 | | June 30, 2020 | | June 30, 2021 | | June 30, 2020 |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Relationship-led | $ | 778,978 | | | $ | 566,414 | | | $ | 1,445,890 | | | $ | 1,242,935 | |
Technology-enabled | 647,777 | | | 435,141 | | | 1,248,737 | | | 973,889 | |
| $ | 1,426,755 | | | $ | 1,001,555 | | | $ | 2,694,627 | | | $ | 2,216,824 | |
ASC Topic 606, Revenues from Contracts with Customers ("ASC 606"), requires that we determine for each customer arrangement whether revenue should be recognized at a point in time or over time. For the three and six months ended June 30, 2021 and 2020, substantially all of our revenues were recognized over time.
Supplemental balance sheet information related to contracts from customers as of June 30, 2021 and December 31, 2020 was as follows:
| | | | | | | | | | | | | | | | | |
| Balance Sheet Location | | June 30, 2021 | | December 31, 2020 |
| | | | | |
| | | (in thousands) |
| | | | | |
Assets: | | | | | |
Capitalized costs to obtain customer contracts, net | Other noncurrent assets | | $ | 270,143 | | | $ | 253,780 | |
Capitalized costs to fulfill customer contracts, net | Other noncurrent assets | | 99,640 | | | 81,371 | |
| | | | | |
Liabilities: | | | | | |
Contract liabilities, net (current) | Accounts payable and accrued liabilities | | 216,331 | | | 217,938 | |
Contract liabilities, net (noncurrent) | Other noncurrent liabilities | | 49,610 | | | 52,944 | |
Net contract assets were not material at June 30, 2021 or at December 31, 2020. Revenue recognized for the three months ended June 30, 2021 and 2020 from contract liability balances at the beginning of each period was $85.0 million and $86.7 million, respectively. Revenue recognized for the six months ended June 30, 2021 and 2020 from contract liability balances at the beginning of each period was $146.6 million and $159.9 million, respectively.
ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. The purpose of this disclosure is to provide additional information about the amounts and expected timing of revenue to be recognized from the remaining performance obligations in our existing contracts. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at June 30, 2021. However, as permitted, we have elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. Accordingly, the total amount of unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amounts disclosed in the table below (in thousands):
| | | | | |
Year Ending December 31, | |
| |
2021 | $ | 502,058 | |
2022 | 845,561 | |
2023 | 627,756 | |
2024 | 450,703 | |
2025 | 354,058 | |
2026 | 280,326 | |
2027 and thereafter | 446,815 | |
Total | $ | 3,507,277 | |
NOTE 4—GOODWILL AND OTHER INTANGIBLE ASSETS
As of June 30, 2021 and December 31, 2020, goodwill and other intangible assets consisted of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| | | |
| (in thousands) |
| | | |
Goodwill | $ | 24,422,012 | | | $ | 23,871,451 | |
Other intangible assets: | | | |
Customer-related intangible assets | $ | 9,476,680 | | | $ | 9,275,093 | |
Acquired technologies | 2,975,966 | | | 2,795,991 | |
Contract-based intangible assets | 2,003,166 | | | 1,981,260 | |
Trademarks and trade names | 1,286,627 | | | 1,239,925 | |
| 15,742,439 | | | 15,292,269 | |
Less accumulated amortization: | | | |
Customer-related intangible assets | 2,257,116 | | | 1,914,214 | |
Acquired technologies | 1,169,394 | | | 960,281 | |
Contract-based intangible assets | 151,556 | | | 120,631 | |
Trademarks and trade names | 349,270 | | | 281,260 | |
| 3,927,336 | | | 3,276,386 | |
| $ | 11,815,103 | | | $ | 12,015,883 | |
The following table sets forth the changes by reportable segment in the carrying amount of goodwill for the six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Merchant Solutions | | Issuer Solutions | | Business and Consumer Solutions | |
Total |
| | | | | | | |
| (in thousands) |
Balance at December 31, 2020 | $ | 13,548,690 | | | $ | 7,957,616 | | | $ | 2,365,145 | | | $ | 23,871,451 | |
Goodwill acquired | 563,232 | | | — | | | — | | | 563,232 | |
Effect of foreign currency translation | (9,669) | | | 2,907 | | | (707) | | | (7,469) | |
Measurement period adjustments | (5,202) | | | — | | | — | | | (5,202) | |
Balance at June 30, 2021 | $ | 14,097,051 | | | $ | 7,960,523 | | | $ | 2,364,438 | | | $ | 24,422,012 | |
There were no accumulated impairment losses for goodwill as of June 30, 2021 or December 31, 2020.
NOTE 5—LONG-TERM DEBT AND LINES OF CREDIT
As of June 30, 2021 and December 31, 2020, long-term debt consisted of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| | | |
| (in thousands) |
| | | |
3.800% senior notes due April 1, 2021 | $ | — | | | $ | 752,199 | |
3.750% senior notes due June 1, 2023 | 559,722 | | | 562,258 | |
4.000% senior notes due June 1, 2023 | 562,634 | | | 565,930 | |
2.650% senior notes due February 15, 2025 | 993,954 | | | 993,110 | |
1.200% senior notes due March 1, 2026 | 1,091,057 | | | — | |
4.800% senior notes due April 1, 2026 | 803,674 | | | 809,324 | |
4.450% senior notes due June 1, 2028 | 480,391 | | | 482,588 | |
3.200% senior notes due August 15, 2029 | 1,237,215 | | | 1,236,424 | |
2.900% senior notes due May 15, 2030 | 989,611 | | | 989,025 | |
4.150% senior notes due August 15, 2049 | 739,967 | | | 739,789 | |
Unsecured term loan facility | 1,987,785 | | | 1,985,776 | |
Unsecured revolving credit facility | 717,000 | | | 36,000 | |
Finance lease liabilities | 72,539 | | | 75,989 | |
Other borrowings | 34,041 | | | 65,352 | |
Total long-term debt | 10,269,590 | | | 9,293,764 | |
Less current portion | 52,611 | | | 827,357 | |
Long-term debt, excluding current portion | $ | 10,216,979 | | | $ | 8,466,407 | |
The carrying amounts of our senior notes and term loan in the table above are presented net of unamortized discount and unamortized debt issuance costs, as applicable. At June 30, 2021, unamortized discount on senior notes was $9.0 million, and unamortized debt issuance costs on senior notes and the unsecured term loan facility were $51.4 million. At December 31, 2020, unamortized discount on senior notes was $8.5 million, and unamortized debt issuance costs on our senior notes and the unsecured term loan facility were $47.4 million. The portion of unamortized debt issuance costs related to revolving credit facilities is included in other noncurrent assets. At June 30, 2021, unamortized debt issuance costs on the unsecured revolving credit facility were $11.7 million, and, at December 31, 2020, unamortized debt issuance costs on the unsecured revolving credit facility were $13.8 million.