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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 September 30, 2024
OR
| | | | | | | | |
☐ | | 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 |
4.875% Senior Notes due 2031 | GPN31A | 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 October 25, 2024 was 254,494,835.
GLOBAL PAYMENTS INC.
FORM 10-Q
For the quarterly period ended September 30, 2024
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | Page |
PART I - FINANCIAL INFORMATION |
ITEM 1. | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
ITEM 2. | | | |
ITEM 3. | | | |
ITEM 4. | | | |
PART II - OTHER INFORMATION |
ITEM 1. | | | |
ITEM 1A. | | | |
ITEM 2. | | | |
ITEM 5. | | | |
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 |
| September 30, 2024 | | September 30, 2023 |
| | | |
Revenues | $ | 2,601,552 | | | $ | 2,475,691 | |
Operating expenses: | | | |
Cost of service | 946,945 | | | 915,531 | |
Selling, general and administrative | 1,179,026 | | | 1,001,964 | |
| 2,125,971 | | | 1,917,495 | |
Operating income | 475,581 | | | 558,196 | |
| | | |
Interest and other income | 55,338 | | | 35,732 | |
Interest and other expense | (155,905) | | | (176,094) | |
| (100,567) | | | (140,362) | |
Income before income taxes and equity in income of equity method investments | 375,014 | | | 417,834 | |
Income tax expense | 57,378 | | | 58,936 | |
Income before equity in income of equity method investments | 317,636 | | | 358,898 | |
Equity in income of equity method investments, net of tax | 15,897 | | | 17,707 | |
Net income | 333,533 | | | 376,605 | |
Net income attributable to noncontrolling interests | (18,408) | | | (14,775) | |
Net income attributable to Global Payments | $ | 315,125 | | | $ | 361,830 | |
| | | |
Earnings per share attributable to Global Payments: | | | |
Basic earnings per share | $ | 1.24 | | | $ | 1.39 | |
Diluted earnings per share | $ | 1.24 | | | $ | 1.39 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2024 | | September 30, 2023 |
| | | |
Revenues | $ | 7,590,508 | | | $ | 7,220,607 | |
Operating expenses: | | | |
Cost of service | 2,807,819 | | | 2,805,237 | |
Selling, general and administrative | 3,282,232 | | | 3,058,605 | |
Net loss on business dispositions | — | | | 139,095 | |
| 6,090,051 | | | 6,002,937 | |
Operating income | 1,500,457 | | | 1,217,670 | |
| | | |
Interest and other income | 126,572 | | | 74,830 | |
Interest and other expense | (477,210) | | | (490,463) | |
| (350,638) | | | (415,633) | |
Income before income taxes and equity in income of equity method investments | 1,149,819 | | | 802,037 | |
Income tax expense | 154,593 | | | 199,748 | |
Income before equity in income of equity method investments | 995,226 | | | 602,289 | |
Equity in income of equity method investments, net of tax | 50,644 | | | 54,101 | |
Net income | 1,045,870 | | | 656,390 | |
Net income attributable to noncontrolling interests | (42,678) | | | (31,454) | |
Net income attributable to Global Payments | $ | 1,003,192 | | | $ | 624,936 | |
| | | |
Earnings per share attributable to Global Payments: | | | |
Basic earnings per share | $ | 3.93 | | | $ | 2.40 | |
Diluted earnings per share | $ | 3.92 | | | $ | 2.39 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | |
| Three Months Ended |
| September 30, 2024 | | September 30, 2023 |
| | | |
Net income | $ | 333,533 | | | $ | 376,605 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments | 188,375 | | | (125,254) | |
Income tax (expense) benefit related to foreign currency translation adjustments | (4,572) | | | 890 | |
Net unrealized (losses) gains on hedging activities | (31,811) | | | 22,993 | |
Reclassification of net unrealized gains on hedging activities to interest expense | (2,786) | | | (2,375) | |
Income tax (expense) benefit related to hedging activities | 8,388 | | | (4,954) | |
Other, net of tax | — | | | (22) | |
Other comprehensive income (loss) | 157,594 | | | (108,722) | |
| | | |
Comprehensive income | 491,127 | | | 267,883 | |
Comprehensive income (loss) attributable to noncontrolling interests | 53,053 | | | (1,410) | |
Comprehensive income attributable to Global Payments | $ | 438,074 | | | $ | 269,293 | |
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2024 | | September 30, 2023 |
| | | |
Net income | $ | 1,045,870 | | | $ | 656,390 | |
Other comprehensive income (loss): | | | |
Foreign currency translation adjustments | (3,590) | | | (83,208) | |
Income tax (expense) benefit related to foreign currency translation adjustments | (985) | | | 360 | |
Net unrealized gains on hedging activities | 6,234 | | | 15,020 | |
Reclassification of net unrealized gains on hedging activities to interest expense | (8,067) | | | (1,890) | |
Income tax (expense) benefit related to hedging activities | 468 | | | (3,148) | |
Other, net of tax | — | | | (66) | |
Other comprehensive loss | (5,940) | | | (72,932) | |
| | | |
Comprehensive income | 1,039,930 | | | 583,458 | |
Comprehensive income attributable to noncontrolling interests | 47,151 | | | 23,491 | |
Comprehensive income attributable to Global Payments | $ | 992,779 | | | $ | 559,967 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 2,941,940 | | | $ | 2,088,887 | |
Accounts receivable, net | 1,150,840 | | | 1,120,078 | |
Settlement processing assets | 3,020,936 | | | 4,097,417 | |
Prepaid expenses and other current assets | 787,366 | | | 767,377 | |
Total current assets | 7,901,082 | | | 8,073,759 | |
Goodwill | 26,959,567 | | | 26,743,523 | |
Other intangible assets, net | 9,318,535 | | | 10,168,046 | |
Property and equipment, net | 2,334,574 | | | 2,190,005 | |
Deferred income taxes | 80,714 | | | 111,712 | |
Notes receivable | 756,620 | | | 713,123 | |
Other noncurrent assets | 2,634,753 | | | 2,570,018 | |
Total assets | $ | 49,985,845 | | | $ | 50,570,186 | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Settlement lines of credit | $ | 788,052 | | | $ | 981,244 | |
Current portion of long-term debt | 1,552,863 | | | 620,585 | |
Accounts payable and accrued liabilities | 2,730,189 | | | 2,824,979 | |
Settlement processing obligations | 3,457,773 | | | 3,698,921 | |
Total current liabilities | 8,528,877 | | | 8,125,729 | |
Long-term debt | 15,215,847 | | | 15,692,297 | |
Deferred income taxes | 1,948,610 | | | 2,242,105 | |
Other noncurrent liabilities | 672,902 | | | 722,540 | |
Total liabilities | 26,366,236 | | | 26,782,671 | |
Commitments and contingencies | | | |
Redeemable noncontrolling interests | 156,630 | | | 507,965 | |
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 September 30, 2024 and December 31, 2023; 254,401,583 issued and outstanding at September 30, 2024 and 260,382,746 issued and outstanding at December 31, 2023 | — | | | — | |
Paid-in capital | 18,810,835 | | | 19,800,953 | |
Retained earnings | 4,269,896 | | | 3,457,182 | |
Accumulated other comprehensive loss | (269,338) | | | (258,925) | |
Total Global Payments shareholders’ equity | 22,811,393 | | | 22,999,210 | |
Nonredeemable noncontrolling interests | 651,586 | | | 280,340 | |
Total equity | 23,462,979 | | | 23,279,550 | |
Total liabilities, redeemable noncontrolling interests and equity | $ | 49,985,845 | | | $ | 50,570,186 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2024 | | September 30, 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 1,045,870 | | | $ | 656,390 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization of property and equipment | 368,905 | | | 342,025 | |
Amortization of acquired intangibles | 1,036,768 | | | 986,026 | |
Amortization of capitalized contract costs | 102,926 | | | 90,463 | |
Share-based compensation expense | 134,361 | | | 173,325 | |
Provision for operating losses and credit losses | 60,677 | | | 84,154 | |
Noncash lease expense | 44,205 | | | 49,805 | |
Deferred income taxes | (251,652) | | | (407,767) | |
Paid-in-kind interest capitalized to principal of notes receivable | (54,743) | | | (29,113) | |
Equity in income of equity method investments, net of tax | (50,644) | | | (54,101) | |
Technology asset charge | 55,808 | | | — | |
Net loss on business dispositions | — | | | 139,095 | |
Other, net | 22,869 | | | 36,715 | |
Changes in operating assets and liabilities, net of the effects of business combinations: | | | |
Accounts receivable | (39,204) | | | (51,490) | |
Settlement processing assets and obligations, net | 789,702 | | | (29,857) | |
Prepaid expenses and other assets | (167,511) | | | (266,923) | |
Accounts payable and other liabilities | (219,081) | | | (127,456) | |
Net cash provided by operating activities | 2,879,256 | | | 1,591,291 | |
Cash flows from investing activities: | | | |
Business combinations and other acquisitions, net of cash and restricted cash acquired | (373,790) | | | (4,099,766) | |
Capital expenditures | (490,913) | | | (500,795) | |
Issuance of notes receivable | — | | | (50,000) | |
Repayment of notes receivable | — | | | 50,000 | |
Net cash from sales of businesses | — | | | 478,695 | |
Proceeds from sale of investments | 18,076 | | | — | |
Other, net | 6 | | | 2,187 | |
Net cash used in investing activities | (846,621) | | | (4,119,679) | |
Cash flows from financing activities: | | | |
Net repayments of settlement lines of credit | (184,454) | | | (33,328) | |
Net borrowings from (repayments of) commercial paper notes | (1,367,859) | | | 1,896,513 | |
Proceeds from long-term debt | 7,637,904 | | | 8,861,129 | |
Repayments of long-term debt | (5,802,954) | | | (7,628,854) | |
Payments of debt issuance costs | (33,056) | | | (12,735) | |
Repurchases of common stock | (900,047) | | | (418,271) | |
Proceeds from stock issued under share-based compensation plans | 33,531 | | | 51,085 | |
Common stock repurchased - share-based compensation plans | (53,780) | | | (37,236) | |
Distributions to noncontrolling interests | (29,356) | | | (24,315) | |
Contributions from noncontrolling interests | 2,116 | | | — | |
Payment of deferred consideration in business combination | (6,390) | | | — | |
Purchase of capped calls related to issuance of convertible notes | (256,250) | | | — | |
Dividends paid | (190,478) | | | (195,611) | |
Net cash provided by (used in) financing activities | (1,151,073) | | | 2,458,377 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 1,078 | | | (35,730) | |
Increase (decrease) in cash, cash equivalents and restricted cash | 882,640 | | | (105,741) | |
Cash, cash equivalents and restricted cash, beginning of the period | 2,256,875 | | | 2,215,606 | |
Cash, cash equivalents and restricted cash, end of the period | $ | 3,139,515 | | | $ | 2,109,865 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
Balance at June 30, 2024 | 254,353 | | | $ | 18,761,494 | | | $ | 4,018,207 | | | $ | (392,287) | | | $ | 22,387,414 | | | $ | 626,238 | | | $ | 23,013,652 | | | $ | 147,400 | |
Net income | | | | | 315,125 | | | | | 315,125 | | | 14,753 | | | 329,878 | | | 3,655 | |
Other comprehensive income | | | | | | | 122,949 | | | 122,949 | | | 29,070 | | | 152,019 | | | 5,575 | |
Stock issued under share-based compensation plans | 141 | | | 8,394 | | | | | | | 8,394 | | | | | 8,394 | | | |
Common stock repurchased - share-based compensation plans | (92) | | | (10,036) | | | | | | | (10,036) | | | | | (10,036) | | | |
Share-based compensation expense | | | 50,999 | | | | | | | 50,999 | | | | | 50,999 | | | |
Excise tax on net share repurchases | | | (16) | | | | | | | (16) | | | | | (16) | | | |
Distributions to noncontrolling interests | | | | | | | | | — | | | (18,475) | | | (18,475) | | | |
Cash dividends declared ($0.25 per common share) | | | | | (63,436) | | | | | (63,436) | | | | | (63,436) | | | |
Balance at September 30, 2024 | 254,402 | | | $ | 18,810,835 | | | $ | 4,269,896 | | | $ | (269,338) | | | $ | 22,811,393 | | | $ | 651,586 | | | $ | 23,462,979 | | | $ | 156,630 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
Balance at June 30, 2023 | 259,962 | | | $ | 19,686,035 | | | $ | 2,863,852 | | | $ | (378,401) | | | $ | 22,171,486 | | | $ | 244,494 | | | $ | 22,415,980 | | | $ | 499,479 | |
Net income | | | | | 361,830 | | | | | 361,830 | | | 13,015 | | | 374,845 | | | 1,760 | |
Other comprehensive loss | | | | | | | (92,537) | | | (92,537) | | | (8,767) | | | (101,304) | | | (7,418) | |
Stock issued under share-based compensation plans | 424 | | | 31,803 | | | | | | | 31,803 | | | | | 31,803 | | | |
Common stock repurchased - share-based compensation plans | (26) | | | (3,031) | | | | | | | (3,031) | | | | | (3,031) | | | |
Share-based compensation expense | | | 36,624 | | | | | | | 36,624 | | | | | 36,624 | | | |
Excise tax on net share repurchases | | | 303 | | | | | | | 303 | | | | | 303 | | | |
Distributions to noncontrolling interests | | | | | | | | | — | | | (5,422) | | | (5,422) | | | (1,638) | |
Redeemable noncontrolling interests measurement period adjustment | | | | | | | | | — | | | | | | | (19,051) | |
Cash dividends declared ($0.25 per common share) | | | | | (64,977) | | | | | (64,977) | | | | | (64,977) | | | |
Balance at September 30, 2023 | 260,360 | | | $ | 19,751,734 | | | $ | 3,160,705 | | | $ | (470,938) | | | $ | 22,441,501 | | | $ | 243,320 | | | $ | 22,684,821 | | | $ | 473,132 | |
See Notes to Unaudited Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
Balance at December 31, 2023 | 260,383 | | | $ | 19,800,953 | | | $ | 3,457,182 | | | $ | (258,925) | | | $ | 22,999,210 | | | $ | 280,340 | | | $ | 23,279,550 | | | $ | 507,965 | |
Net income | | | | | 1,003,192 | | | | | 1,003,192 | | | 35,189 | | | 1,038,381 | | | 7,489 | |
Other comprehensive income (loss) | | | | | | | (10,413) | | | (10,413) | | | 6,452 | | | (3,961) | | | (1,979) | |
Stock issued under share-based compensation plans | 1,418 | | | 33,531 | | | | | | | 33,531 | | | | | 33,531 | | | |
Common stock repurchased - share-based compensation plans | (426) | | | (54,080) | | | | | | | (54,080) | | | | | (54,080) | | | |
Share-based compensation expense | | | 134,361 | | | | | | | 134,361 | | | | | 134,361 | | | |
Repurchases of common stock | (6,973) | | | (909,253) | | | | | | | (909,253) | | | | | (909,253) | | | |
Distributions to noncontrolling interests | | | | | | | | | — | | | (29,356) | | | (29,356) | | | |
Contributions from noncontrolling interests | | | | | | | | | — | | | 89 | | | 89 | | | 2,027 | |
Reclassification of redeemable noncontrolling interest to nonredeemable noncontrolling interest | | | | | | | | | — | | | 358,872 | | | 358,872 | | | (358,872) | |
Purchase of capped calls related to issuance of convertible notes, net of taxes of $61,573 | | | (194,677) | | | | | | | (194,677) | | | | | (194,677) | | | |
Cash dividends declared ($0.75 per common share) | | | | | (190,478) | | | | | (190,478) | | | | | (190,478) | | | |
Balance at September 30, 2024 | 254,402 | | | $ | 18,810,835 | | | $ | 4,269,896 | | | $ | (269,338) | | | $ | 22,811,393 | | | $ | 651,586 | | | $ | 23,462,979 | | | $ | 156,630 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
Balance at December 31, 2022 | 263,082 | | | $ | 19,978,095 | | | $ | 2,731,380 | | | $ | (405,969) | | | $ | 22,303,506 | | | $ | 236,704 | | | $ | 22,540,210 | | | $ | — | |
Net income | | | | | 624,936 | | | | | 624,936 | | | 29,698 | | | 654,634 | | | 1,756 | |
Other comprehensive loss | | | | | | | (64,969) | | | (64,969) | | | (1,676) | | | (66,645) | | | (6,287) | |
Stock issued under share-based compensation plans | 1,697 | | | 51,085 | | | | | | | 51,085 | | | | | 51,085 | | | |
Common stock repurchased - share-based compensation plans | (354) | | | (39,510) | | | | | | | (39,510) | | | | | (39,510) | | | |
Share-based compensation expense | | | 173,325 | | | | | | | 173,325 | | | | | 173,325 | | | |
Redeemable noncontrolling interests acquired in a business combination | | | | | | | | | — | | | | | — | | | 556,070 | |
Issuance of share-based awards in connection with a business combination | | | 2,484 | | | | | | | 2,484 | | | | | 2,484 | | | |
Repurchases of common stock | (4,065) | | | (413,745) | | | | | | | (413,745) | | | | | (413,745) | | | |
Distributions to noncontrolling interests | | | | | | | | | — | | | (21,406) | | | (21,406) | | | (2,909) | |
Redeemable noncontrolling interests measurement period adjustment | | | | | | | | | — | | | | | — | | | (75,498) | |
Cash dividends declared ($0.75 per common share) | | | | | (195,611) | | | | | (195,611) | | | | | (195,611) | | | |
Balance at September 30, 2023 | 260,360 | | | $ | 19,751,734 | | | $ | 3,160,705 | | | $ | (470,938) | | | $ | 22,441,501 | | | $ | 243,320 | | | $ | 22,684,821 | | | $ | 473,132 | |
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 two reportable segments: Merchant Solutions and Issuer Solutions. As described in "Note 3—Business Dispositions," during the second quarter of 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our former Consumer Solutions segment. Our consolidated financial statements include the results of our former Consumer Solutions segment for periods prior to disposition. See "Note 15—Segment Information" for further 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. Investments in entities that we do not control are accounted for using the equity or cost method, based on whether or not we have the ability to exercise significant influence over operating and financial policies. 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, 2023 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 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, 2023.
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, uncertainty resulting from global events and other macroeconomic conditions 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 based upon management’s estimates and assumptions utilizing the most currently available information.
SEC Rule Changes - On March 6, 2024, the SEC adopted final rules that require disclosure of certain climate-related information, including disclosures relating to material climate-related risks, targets or goals, risk management and governance activities and greenhouse gas emissions. In addition, the rules require disclosure of certain climate-related financial metrics in the notes to the audited financial statements. The new disclosures are required on a prospective basis and provide for a phased-in compliance period. However, in April 2024, the SEC stayed the rules pending judicial review. Therefore, the timing of the effectiveness of these rules and their ultimate enforceability is uncertain.
Recently issued accounting pronouncements not yet adopted
ASU 2023-09 - In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvement to Income Tax Disclosures," which is intended to enhance the transparency and decision usefulness of income tax information through improvements to income tax disclosures, primarily related to the rate reconciliation and income taxes paid. The amendments in this update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis with the option to apply the standard retrospectively. We are evaluating how the enhanced disclosure requirements of ASU 2023-09 will affect our presentation, and we will include the incremental disclosures upon the effective date.
ASU 2023-07 - In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, inclusion of all annual disclosures in interim periods and disclosure of the title and position of the chief operating decision maker. The amendments in this update are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are evaluating how the enhanced disclosure requirements of ASU 2023-07 will affect our presentation, and we will include the incremental disclosures upon the effective date.
NOTE 2—ACQUISITION
EVO Payments, Inc.
On March 24, 2023, we acquired all of the outstanding common stock of EVO Payments, Inc. (“EVO”). EVO is a payment technology and services provider, offering payment solutions to merchants ranging from small and middle market enterprises to multinational companies and organizations across the Americas and Europe. The acquisition aligns with our technology-enabled payments strategy, expands our geographic presence in attractive markets and augments our business-to-business software and payment solutions business.
Total purchase consideration was $4.3 billion, which consisted of the following (in thousands):
| | | | | | | | |
Cash paid to EVO shareholders (1) | | $ | 3,273,951 | |
Cash paid for equity awards attributable to purchase consideration (2) | | 58,510 | |
Value of replacement awards attributable to purchase consideration (3) | | 2,484 | |
Total purchase consideration transferred to EVO shareholders | | 3,334,945 | |
Repayment of EVO's unsecured revolving credit facility (including accrued interest and fees) | | 665,557 | |
Payment of certain acquiree transaction costs and other liabilities on behalf of EVO (4) | | 269,118 | |
Total purchase consideration | | $ | 4,269,620 | |
(1) Holders of EVO common stock, convertible preferred stock and common units received $34 for each share of EVO common stock held at the effective time of the transaction.
(2) Pursuant to the merger agreement, we cash settled vested options and certain unvested equity awards of EVO equity award holders.
(3) Pursuant to the merger agreement, we granted equity awards for approximately 0.3 million shares of Global Payments common stock to certain EVO equity award holders. Each such replacement award is subject to the same terms and conditions (including vesting and exercisability) that applied to the corresponding EVO equity award. We apportioned the fair value of the replacement awards between purchase consideration (the portion attributable to pre-acquisition services in relation to the total vesting term of the award) and amounts to be recognized in periods following the acquisition as share-based compensation expense over the requisite service period of the replacement awards.
(4) Certain acquiree transaction costs and liabilities, including amounts outstanding under EVO’s tax receivable agreement, were required to be repaid by us upon consummation of the acquisition.
The cash portion of the purchase consideration was funded through cash on hand and borrowings under our revolving credit facility.
We accounted for the EVO acquisition as a business combination, which generally requires that we recognize the assets acquired and liabilities assumed at fair value as of the acquisition date. The final estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase consideration, were as follows (in thousands):
| | | | | |
| Final Amounts |
| |
| |
Cash and cash equivalents | $ | 324,859 | |
Accounts receivable | 51,470 | |
Settlement processing assets | 134,712 | |
Deferred income tax assets | 1,734 | |
Property and equipment | 72,100 | |
Identifiable intangible assets | 1,478,995 | |
Other assets | 148,567 | |
Accounts payable and accrued liabilities | (289,360) | |
Settlement lines of credit | (7,587) | |
Settlement processing obligations | (163,535) | |
Deferred income tax liabilities | (253,221) | |
Other liabilities | (61,207) | |
Total identifiable net assets | 1,437,527 | |
Redeemable noncontrolling interests | (471,119) | |
Goodwill | 3,303,212 | |
Total purchase consideration | $ | 4,269,620 | |
During the nine months ended September 30, 2024, we made measurement-period adjustments that increased the amount of goodwill by $19.9 million, primarily related to deferred income taxes as a result of finalizing the evaluation of the differences in the bases of assets and liabilities for financial reporting and tax purposes. The effects of the measurement-period adjustments on our consolidated statement of income for the nine months ended September 30, 2024 were not material.
Goodwill arising from the acquisition was included in the Merchant Solutions segment and was attributable to expected growth opportunities, potential synergies from combining the acquired business into our existing businesses and an assembled workforce. We expect that approximately $1.2 billion of the goodwill from this acquisition will be deductible for income tax purposes.
The following table reflects the estimated acquisition-date fair values of the identified intangible assets of EVO and their respective weighted-average estimated amortization periods:
| | | | | | | | | | | |
| Estimated Fair Value | | Weighted-Average Estimated Amortization Periods |
| (in thousands) | | (years) |
Customer-related intangible assets | $ | 916,000 | | | 11 |
Contract-based intangible assets | 470,000 | | | 12 |
Acquired technologies | 86,995 | | | 7 |
Trademarks and trade names | 6,000 | | | 2 |
Total estimated identifiable intangible assets | $ | 1,478,995 | | | 11 |
For the nine months ended September 30, 2024, and during the period from the acquisition date through September 30, 2023, the acquired operations of EVO contributed less than 10% to our consolidated revenues and operating income. The historical revenue and earnings of EVO were not material for the purpose of presenting pro forma information. In addition, transaction costs associated with this business combination were not material.
NOTE 3—BUSINESS DISPOSITIONS
Gaming Business - On April 1, 2023, we completed the sale of our gaming business for approximately $400 million, subject to certain closing adjustments. The gaming business was included in our Merchant Solutions segment prior to disposition, and had been presented as held for sale in our consolidated balance sheet since December 31, 2022. We recognized a gain on the sale of $104.1 million during the nine months ended September 30, 2023.
Consumer Business - On April 26, 2023, we completed the sale of the consumer portion of our Netspend business for approximately $1 billion, subject to certain closing adjustments. The consumer business comprised our former Consumer Solutions segment prior to disposition and had been presented as held for sale with certain adjustments to report the disposal group at fair value less costs to sell in our consolidated balance sheet since June 30, 2022. We recognized a loss on this business disposition in our consolidated statement of income of $243.2 million during the nine months ended September 30, 2023. The loss during the nine months ended September 30, 2023 included the effects of incremental negotiated closing adjustments, changes in the estimated fair value of the seller financing and the effects of the final tax structure of the transaction.
Notes Receivable and Allowance for Credit Losses
In connection with the sale of our consumer business, we provided seller financing consisting of the following: (1) a first lien seven-year secured term loan facility with an aggregate principal amount of $350 million bearing interest at a fixed annual rate of 9.0%, including 3.5% payable quarterly in cash and 5.5% settled quarterly via the issuance of additional paid-in-kind ("PIK") notes with the same terms as the original notes until December 2024, after which interest will be payable quarterly in cash along with quarterly principal payments of $4.375 million with the remaining balance due at maturity; and (2) a second lien twenty-five year secured term loan facility with an aggregate principal amount of $325 million bearing interest at a fixed annual rate of 13.0% PIK due at maturity. In addition, during the second quarter of 2023, we provided the purchasers a five-year $50 million secured revolving facility, bearing interest at a fixed annual rate of 9.0% payable quarterly in cash, initial drawings on which were subsequently repaid during the third quarter of 2023.
In connection with the sale of our gaming business in April 2023, we provided seller financing consisting of an unsecured promissory note due April 1, 2030 with an aggregate principal amount of $32 million bearing interest at a fixed annual rate of 11.0%.
We recognized interest income of $22.8 million and $66.4 million on the notes during the three and nine months ended September 30, 2024, respectively, and $21.4 million and $37.1 million during the three and nine months ended September 30, 2023, respectively, as a component of interest and other income in the consolidated statements of income. The issuance of the notes in connection with the sale transactions was a noncash investing activity in our consolidated statement of cash flows for the nine months ended September 30, 2023.
As of September 30, 2024 and December 31, 2023, there was an aggregate principal amount of $795.1 million and $753.5 million, respectively, outstanding on the notes, including PIK interest, and the notes are presented net of the allowance for credit losses of $15.2 million within notes receivable in our consolidated balance sheet. Principal payments due within 12 months are included in prepaid expenses and other current assets in the consolidated balance sheets. We recognized an initial noncash charge as an allowance for estimated future credit losses on the notes of $18.2 million during the nine months ended September 30, 2023, which is included as a component of interest and other expense in our consolidated statements of income. The allowance for estimated future credit losses was subsequently reduced to $15.2 million in the fourth quarter of 2023. The estimated fair value of the notes receivable was $802.5 million and $735.6 million as of September 30, 2024 and December 31, 2023, respectively. The estimated fair value of notes receivable was based on a discounted cash flow approach and is considered to be a Level 3 measurement of the valuation hierarchy.
NOTE 4—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 nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 |
| Merchant Solutions | | Issuer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Americas | $ | 1,610,070 | | | $ | 467,699 | | | $ | (5,849) | | | $ | 2,071,920 | |
Europe | 320,911 | | | 142,042 | | | — | | | 462,953 | |
Asia Pacific | 66,679 | | | 11,389 | | | (11,389) | | | 66,679 | |
| $ | 1,997,660 | | | $ | 621,130 | | | $ | (17,238) | | | $ | 2,601,552 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Merchant Solutions | | Issuer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Americas | $ | 1,524,575 | | | $ | 465,263 | | | $ | (5,237) | | | $ | 1,984,601 | |
Europe | 295,787 | | | 131,659 | | | — | | | 427,446 | |
Asia Pacific | 63,644 | | | 10,926 | | | (10,926) | | | 63,644 | |
| $ | 1,884,006 | | | $ | 607,848 | | | $ | (16,163) | | | $ | 2,475,691 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 |
| Merchant Solutions | | Issuer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Americas | $ | 4,744,077 | | | $ | 1,393,071 | | | $ | (17,524) | | | $ | 6,119,624 | |
Europe | 869,908 | | | 412,181 | | | — | | | 1,282,089 | |
Asia Pacific | 188,795 | | | 32,121 | | | (32,121) | | | 188,795 | |
| $ | 5,802,780 | | | $ | 1,837,373 | | | $ | (49,645) | | | $ | 7,590,508 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Merchant Solutions | | Issuer Solutions | | Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 4,389,598 | | | $ | 1,363,627 | | | $ | 182,740 | | | $ | (31,713) | | | $ | 5,904,252 | |
Europe | 750,810 | | | 374,044 | | | — | | | — | | | 1,124,854 | |
Asia Pacific | 191,501 | | | 31,525 | | | — | | | (31,525) | | | 191,501 | |
| $ | 5,331,909 | | | $ | 1,769,196 | | | $ | 182,740 | | | $ | (63,238) | | | $ | 7,220,607 | |
The following table presents a disaggregation of our Merchant Solutions segment revenues by distribution channel for the three and nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Relationship-led | $ | 1,030,798 | | | $ | 1,003,647 | | | $ | 2,950,733 | | | $ | 2,775,372 | |
Technology-enabled | 966,862 | | | 880,359 | | | 2,852,047 | | | 2,556,537 | |
| $ | 1,997,660 | | | $ | 1,884,006 | | | $ | 5,802,780 | | | $ | 5,331,909 | |
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 nine months ended September 30, 2024 and 2023, substantially all of our revenues were recognized over time.
Supplemental balance sheet information related to contracts from customers as of September 30, 2024 and December 31, 2023 was as follows:
| | | | | | | | | | | | | | | | | |
| Balance Sheet Location | | September 30, 2024 | | December 31, 2023 |
| | | | | |
| | | (in thousands) |
| | | | | |
Assets: | | | | | |
Capitalized costs to obtain customer contracts, net | Other noncurrent assets | | $ | 376,271 | | | $ | 360,684 | |
Capitalized costs to fulfill customer contracts, net | Other noncurrent assets | | $ | 220,185 | | | $ | 197,355 | |
| | | | | |
Liabilities: | | | | | |
Contract liabilities, net (current) | Accounts payable and accrued liabilities | | $ | 240,911 | | | $ | 229,686 | |
Contract liabilities, net (noncurrent) | Other noncurrent liabilities | | $ | 62,241 | | | $ | 54,246 | |
Net contract assets were not material at September 30, 2024 or December 31, 2023. Revenue recognized for the three months ended September 30, 2024 and 2023 from contract liability balances at the beginning of each period was $84.9 million and $85.2 million, respectively. Revenue recognized for the nine months ended September 30, 2024 and 2023 from contract liability balances at the beginning of each period was $188.2 million and $181.3 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 September 30, 2024. 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, | |
| |
2024 | $ | 318,789 | |
2025 | 1,093,200 | |
2026 | 864,518 | |
2027 | 657,806 | |
2028 | 375,721 | |
2029 | 167,104 | |
2030 and thereafter | 335,248 | |
Total | $ | 3,812,386 | |
NOTE 5—GOODWILL AND OTHER INTANGIBLE ASSETS
As of September 30, 2024 and December 31, 2023, goodwill and other intangible assets consisted of the following:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in thousands) |
| | | |
Goodwill | $ | 26,959,567 | | | $ | 26,743,523 | |
Other intangible assets: | | | |
Customer-related intangible assets | $ | 10,801,626 | | | $ | 10,653,036 | |
Acquired technologies | 3,042,297 | | | 3,005,576 | |
Contract-based intangible assets | 2,260,229 | | | 2,254,273 | |
Trademarks and trade names | 1,075,529 | | | 1,074,631 | |
| 17,179,681 | | | 16,987,516 | |
Less accumulated amortization: | | | |
Customer-related intangible assets | 4,476,970 | | | 3,866,686 | |
Acquired technologies | 2,307,509 | | | 2,047,330 | |
Contract-based intangible assets | 410,920 | | | 309,886 | |
Trademarks and trade names | 665,747 | | | 595,568 | |
| 7,861,146 | | | 6,819,470 | |
| $ | 9,318,535 | | | $ | 10,168,046 | |
The following table sets forth the changes by reportable segment in the carrying amount of goodwill for the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | |
| Merchant Solutions | | Issuer Solutions | | Total |
| | | | | |
| (in thousands) |
Balance at December 31, 2023 | $ | 17,226,828 | | | $ | 9,516,695 | | | $ | 26,743,523 | |
Goodwill acquired | 191,507 | | | — | | | 191,507 | |
Effect of foreign currency translation | (7,043) | | | 11,653 | | | 4,610 | |
Measurement period adjustments | 19,927 | | | — | | | 19,927 | |
Balance at September 30, 2024 | $ | 17,431,219 | | | $ | 9,528,348 | | | $ | 26,959,567 | |
Accumulated impairment losses for goodwill were $357.9 million as of September 30, 2024 and December 31, 2023.
NOTE 6—LONG-TERM DEBT AND LINES OF CREDIT
As of September 30, 2024 and December 31, 2023, long-term debt consisted of the following:
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (in thousands) |
| | | |
1.500% senior notes due November 15, 2024 | $ | 499,844 | | | $ | 499,143 | |
2.650% senior notes due February 15, 2025 | 999,372 | | | 998,172 | |
1.200% senior notes due March 1, 2026 | 1,097,285 | | | 1,095,848 | |
4.800% senior notes due April 1, 2026 | 766,950 | | | 775,425 | |
2.150% senior notes due January 15, 2027 | 747,134 | | | 746,196 | |
4.950% senior notes due August 15, 2027 | 497,180 | | | 496,444 | |
4.450% senior notes due June 1, 2028 | 466,111 | | | 469,406 | |
3.200% senior notes due August 15, 2029 | 1,242,322 | | | 1,241,169 | |
5.300% senior notes due August 15, 2029 | 496,587 | | | 496,063 | |
2.900% senior notes due May 15, 2030 | 993,415 | | | 992,537 | |
2.900% senior notes due November 15, 2031 | 744,023 | | | 743,394 | |
5.400% senior notes due August 15, 2032 | 743,524 | | | 742,908 | |
4.150% senior notes due August 15, 2049 | 741,126 | | | 740,860 | |
5.950% senior notes due August 15, 2052 | 738,875 | | | 738,576 | |
4.875% senior notes due March 17, 2031 | 882,592 | | | 873,747 | |
1.000% convertible notes due August 15, 2029 | 1,459,694 | | | 1,453,493 | |
1.500% convertible notes due March 1, 2031 | 1,969,369 | | | — | |
Revolving credit facility | 1,500,000 | | | 1,570,000 | |
Commercial paper notes | — | | | 1,371,639 | |
Finance lease liabilities | 14,362 | | | 24,525 | |
Other borrowings | 168,945 | | | 243,337 | |
Total long-term debt | 16,768,710 | | | 16,312,882 | |
Less current portion | 1,552,863 | | | 620,585 | |
Long-term debt, excluding current portion | $ | 15,215,847 | | | $ | 15,692,297 | |
The carrying amounts of our senior notes and convertible notes in the table above are presented net of unamortized discount and unamortized debt issuance costs, as applicable. At September 30, 2024, the unamortized discount on senior notes and convertible notes was $40.5 million, and unamortized debt issuance costs on senior notes and convertible notes were $98.0 million. At December 31, 2023, the unamortized discount on senior notes and convertible notes was $46.1 million and unamortized debt issuance costs on senior notes and convertible notes were $78.4 million. The portion of unamortized debt issuance costs related to revolving credit facilities is included in other noncurrent assets. At September 30, 2024 and December 31, 2023, unamortized debt issuance costs on the unsecured revolving credit facility were $14.7 million and $18.5 million, respectively.
At September 30, 2024, future maturities of long-term debt (excluding finance lease liabilities) are as follows by year (in thousands):
| | | | | |
Year Ending December 31, | |
| |
2024 | $ | 526,461 | |
2025 | 1,051,733 | |
2026 | 1,887,927 | |
2027 | 2,787,642 | |
2028 | 464,391 | |
2029 | 3,250,128 | |
2030 and thereafter | 6,891,461 | |
Total | $ | 16,859,743 | |
Convertible Notes
1.500% convertible notes due March 1, 2031
On February 23, 2024, we issued $2.0 billion in aggregate principal amount of 1.500% convertible unsecured senior notes due March 2031 through a private placement. The net proceeds from this offering were approximately $1.97 billion reflecting debt issuance costs of $33.5 million, which were capitalized and reflected as a reduction of the related carrying amount of the convertible notes in our consolidated balance sheet. Interest on the convertible notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024, to the holders of record on the preceding February 15 and August 15, respectively.
Prior to December 1, 2030, the notes are convertible at the option of the holders only under certain conditions, including: (i) if the last reported sale price of our common stock has been at least 130% of the conversion price for at least 20 trading days within the last 30 consecutive trading days of the immediately preceding calendar quarter; (ii) for a five business day period following a ten-day consecutive trading period where the trading price of the notes is less than 98% of the product of the last reported sale price of our common stock and the conversion rate; (iii) if we call any or all of the notes for redemption; or (iv) upon the occurrence of certain corporate events. On or after December 1, 2030, the notes are convertible at the option of the holders at any time until the second scheduled trading day prior to the maturity date. The conversion rate for the notes is initially 6.371 shares of common stock per $1,000 in principal amount of the notes (which is equal to an initial conversion price of approximately $156.96 per share), subject to customary adjustments upon the occurrence of certain events. Upon conversion, the principal amount of, and interest due on, the convertible notes are required to be settled in cash and any other amounts may be settled in shares, cash or a combination of shares and cash at our election.
We may not redeem the notes prior to March 6, 2028. On or after March 6, 2028, we have the option to redeem all or any portion of the notes for cash if the last reported sale price of our common stock has been at least 130% of the conversion price for at least 20 trading days within the last 30 consecutive trading day period at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. If certain corporate events that constitute a fundamental change (as defined in the indenture governing the notes) occur, any holder of the notes may require that we repurchase all or a portion of their notes for cash at a purchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the indenture governing the notes) occur, then the conversion rate will in certain circumstances be increased. The notes include customary covenants for notes of this type, as well as customary events of default, which may result in the acceleration of the maturity of the convertible notes.
In connection with the issuance of the notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers of the notes and other financial institutions to cover, subject to customary adjustments, the number of shares of common stock initially underlying the notes. The economic effect of the capped call transactions is to hedge the potential dilutive effect upon the conversion of the notes, or offset our cash obligation if the cash settlement option is elected, for amounts in excess of the principal amount of converted notes subject to a cap. The initial cap price of the capped call
transactions is $228.90 per share. The capped call transactions meet the accounting criteria to be reflected in stockholders’ equity and not accounted for as derivatives. The cost of $256.3 million incurred in connection with the capped call transactions was reflected as a reduction to paid-in-capital in our consolidated balance sheet as of September 30, 2024, net of applicable income taxes.
1.000% convertible notes due August 15, 2029
We have $1.5 billion in aggregate principal amount of 1.000% convertible notes due August 2029, which were issued during 2022 in a private placement pursuant to an investment agreement with Silver Lake Partners. Interest on the convertible notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2023, to the holders of record on the preceding February 1 and August 1, respectively. The convertible notes mature on August 15, 2029, subject to earlier conversion or repurchase. The notes, which are currently convertible, are presented within long-term debt in our consolidated balance sheet based on our intent and ability to refinance on a long-term basis should a conversion event occur.
Revolving Credit Facility
Our revolving credit agreement provides for an unsubordinated unsecured $5.75 billion revolving credit facility that matures in August 2027. As of September 30, 2024, there were borrowings of $1.5 billion outstanding under the revolving credit facility with an interest rate of 6.56%, and the total available commitments under the revolving credit facility were $4.2 billion.
Commercial Paper
We have a $2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue. Commercial paper notes are expected to be issued at a discount from par, or they may bear interest, each at commercial paper market rates dictated by market conditions at the time of their issuance. The proceeds from issuances of commercial paper notes will be used primarily for general corporate purposes but may also be used for acquisitions, to pay dividends, for debt refinancing or for other purposes.
As of September 30, 2024, we had no borrowings outstanding under our commercial paper program. The commercial program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. As such, we could draw on the revolving credit facility to repay commercial paper notes that cannot be rolled over or refinanced with similar debt.
Fair Value of Long-Term Debt
As of September 30, 2024, our senior notes had a total carrying amount of $11.7 billion and an estimated fair value of $11.3 billion. As of September 30, 2024, our 1.500% convertible notes due March 1, 2031 had a total carrying amount of $2.0 billion and an estimated fair value of $1.9 billion. The estimated fair values were based on quoted market prices in active markets and are considered to be Level 1 measurements of the valuation hierarchy.
As of September 30, 2024, our 1.000% convertible notes due August 15, 2029 had a total carrying amount of $1.5 billion and an estimated fair value of $1.5 billion. The estimated fair value of our convertible notes was based on a lattice pricing model and is considered to be a Level 3 measurement of the valuation hierarchy.
The fair value of other long-term debt approximated its carrying amount at September 30, 2024.
Compliance with Covenants
The convertible notes include customary covenants and events of default for convertible notes of this type. The revolving credit agreement contains customary affirmative covenants and restrictive covenants, including, among others, financial covenants based on net leverage and interest coverage ratios, and customary events of default. The required leverage ratio was increased as a result of the acquisition of EVO and will gradually step-down over eight quarters to the original required ratio of 3.75 to 1.00. As of September 30, 2024, the required leverage ratio was 4.25 to 1.00, and the required interest coverage ratio was 3.00 to 1.00. We were in compliance with all applicable covenants as of September 30, 2024.
Interest Expense
Interest expense was $150.0 million and $173.3 million for the three months ended September 30, 2024 and 2023, respectively, and $465.2 million and $464.6 million for the nine months ended September 30, 2024 and 2023, respectively.
NOTE 7—DERIVATIVES AND HEDGING INSTRUMENTS
Net Investment Hedge
We have designated our aggregate €800 million Euro-denominated 4.875% senior notes due March 2031 as a hedge of our net investment in our Euro-denominated operations. The purpose of the net investment hedge is to reduce the volatility of our net investment in our Euro-denominated operations due to changes in foreign currency exchange rates.
Investments in foreign operations with functional currencies other than the reporting currency are subject to foreign currency risk as the assets and liabilities of these subsidiaries are translated into the reporting currency at the period-end rate of exchange with the resulting foreign currency translation adjustment presented as a component of other comprehensive income and included in accumulated comprehensive income within equity in our consolidated balance sheets. Under net investment hedge accounting, the foreign currency remeasurement gains and losses associated with our Euro-denominated senior notes are presented within the same components of other comprehensive income and accumulated comprehensive income, partially offsetting the foreign currency translation adjustment for our foreign subsidiaries.
We recognized a (loss) gain of $(34.0) million and $26.8 million within foreign currency translation adjustments in other comprehensive income in our consolidated statements of comprehensive income during the three months ended September 30, 2024 and 2023, respectively, and $(34.9) million and $10.3 million during the nine months ended September 30, 2024 and 2023, respectively.
Interest Rate Swaps
We have interest rate swap agreements with financial institutions to hedge changes in cash flows attributable to interest rate risk on a portion of our variable-rate debt instruments. In the first quarter of 2023, we entered into new interest rate swap agreements with an aggregate notional amount of $1.5 billion to convert eligible borrowings under our revolving credit facility from a floating term Secured Overnight Financing Rate to a fixed rate. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. Since we have designated the interest rate swap agreements as cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recognized as components of other comprehensive income. The fair values of our interest rate swaps are determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. These derivative instruments are classified within Level 2 of the valuation hierarchy.
The table below presents information about our interest rate swaps, designated as cash flow hedges, included in the consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Fair Values |
Derivative Financial Instruments | | Balance Sheet Location | | Weighted-Average Fixed Rate of Interest at September 30, 2024 | | Range of Maturity Dates at September 30, 2024 | | September 30, 2024 | | December 31, 2023 |
| | | | | | | | | | |
| | | | | | | | (in thousands) |
| | | | | | | | | | |
Interest rate swaps (Notional of $1.5 billion at September 30, 2024 and December 31, 2023) | | Other noncurrent liabilities | | 4.26% | | April 17, 2027 - August 17, 2027 | | $ | 34,172 | | | $ | 28,187 | |
The table below presents the effects of our interest rate swaps on the consolidated statements of income and statements of comprehensive income for the three and nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Net unrealized gains (losses) recognized in other comprehensive income (loss) | $ | (31,811) | | | $ | 22,993 | | | $ | 6,234 | | | $ | 15,020 | |
Net unrealized gains reclassified out of other comprehensive income (loss) to interest expense | $ | 2,786 | | | $ | 2,375 | | | $ | 8,067 | | | $ | 1,890 | |
As of September 30, 2024, the amount of net unrealized loss in accumulated other comprehensive loss related to our interest rate swaps that is expected to be reclassified into interest expense during the next 12 months was $10.1 million.
NOTE 8—INCOME TAX
Our effective income tax rates for the three and nine months ended September 30, 2024 were 15.3% and 13.4%, respectively. Our effective income tax rates for the three and nine months ended September 30, 2024 differed favorably from the U.S. statutory rate primarily as a result of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction. Our effective income tax rate for the nine months ended September 30, 2024 also included the favorable effect of a change in the assessment of the need for a valuation allowance related to certain foreign tax credit carryforwards.
For the three months ended September 30, 2023, our effective income tax rate of 14.1% was lower than the U.S. statutory rate primarily due to the favorable effects of foreign-derived intangible income deductions, tax credits and foreign interest income not subject to tax. For the nine months ended September 30, 2023, our effective income tax rate of 24.9% was higher than the U.S. statutory rate as a result of a gain on the dispositions of our consumer and gaming businesses for income tax reporting purposes, while a net loss on the dispositions was recognized for financial reporting purposes, which was partially offset by the favorable effect on the rate of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction.
NOTE 9—REDEEMABLE NONCONTROLLING INTERESTS
The portions of equity in certain of our consolidated subsidiaries that are not attributable, directly or indirectly, to us, are redeemable upon the occurrence of an event that is not solely within our control.
During the second quarter of 2024, we formed a new joint venture in Germany, of which we hold a 51% controlling interest. Under the shareholder agreement, the minority shareholder has the option to compel us to purchase their shares at fair market value upon the occurrence of a specific change in control event. As of September 30, 2024, the option is not considered probable of becoming redeemable. We also own 51% of our subsidiary in Greece and 50.1% of our subsidiary in Chile. Under the respective shareholder agreements, the minority shareholders have the option to compel us to purchase their shares at a price per share based on the fair value of the shares, or under certain circumstances for our subsidiary in Greece, at a price determined by calculations stipulated in the shareholder agreement. The options have no expiration date.
Because the exercise of each of these redemption options is not solely within our control, the redeemable noncontrolling interests are presented in the mezzanine section between total liabilities and shareholders’ equity, as temporary equity, in our consolidated balance sheets. The redeemable noncontrolling interest for each subsidiary is reflected at the higher of: (i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of comprehensive income (loss), capital contributions and distributions or (ii) the redemption price.
The option held by the minority shareholder in Greece, which is redeemable at a price other than fair value, is considered probable of becoming redeemable on December 8, 2025. In determining the measurement method of redemption price, we have elected to accrete changes in the redemption price over the period from the date of issuance to the earliest redemption date of the instrument using the effective interest method, applied prospectively. We have also elected to recognize the entire amount
of any redemption price adjustments in net income attributable to noncontrolling interests in our consolidated statements of income.
In addition, we own 66% of our subsidiary in Poland. The redemption option held by the minority shareholder in Poland expired on January 1, 2024, and the redeemable noncontrolling interest was reclassified to nonredeemable noncontrolling interest in the consolidated balance sheet as of January 1, 2024.
NOTE 10—SHAREHOLDERS’ EQUITY
We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase programs. During the nine months ended September 30, 2024 and 2023, we repurchased and retired 6,972,979 and 4,064,918 shares of our common stock, respectively, at a cost, including commissions and applicable excise taxes, of $909.3 million and $413.7 million, or $130.40 and $101.79 per share, respectively. The share repurchase activity for the nine months ended September 30, 2024 included the repurchase of 1,414,759 shares using a portion of the net proceeds from our offering of 1.500% convertible unsecured senior notes due March 2031 through privately negotiated transactions with purchasers of notes in the offering, or one of their respective affiliates. The purchase price per share of the common stock repurchased in such transactions equaled the closing price of the common stock on February 20, 2024, which was $130.80 per share.
As of September 30, 2024, the remaining amount available under our share repurchase program was $1,371.9 million. On October 24, 2024, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $2.5 billion. On October 30, 2024, we entered into an accelerated share repurchase agreement to repurchase an aggregate $600 million shares of common stock during the program purchase period, which will end prior to December 31, 2024. The total number of shares to be repurchased under the program will generally be based on the average of the daily volume-weighted average prices of our common stock during the repurchase period less a discount and subject to adjustments pursuant to the terms of the program.
On October 24, 2024, our board of directors declared a dividend of $0.25 per share payable on December 27, 2024 to common shareholders of record as of December 13, 2024.
NOTE 11—SHARE-BASED AWARDS AND STOCK OPTIONS
The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Share-based compensation expense | $ | 50,999 | | | $ | 36,624 | | | $ | 134,361 | | | $ | 173,325 | |
Income tax benefit | $ | 12,105 | | | $ | 7,488 | | | $ | 28,439 | | | $ | 39,378 | |
Share-Based Awards
The following table summarizes the changes in unvested restricted stock and performance awards for the nine months ended September 30, 2024:
| | | | | | | | | | | |
| Shares | | Weighted-Average Grant-Date Fair Value |
| | | |
| (in thousands) | | |
| | | |
Unvested at December 31, 2023 | 2,481 | | | $131.41 | |
Granted | 1,214 | | | 129.14 | |
Vested | (1,142) | | | 142.65 | |
Forfeited | (153) | | | 121.64 | |
Unvested at September 30, 2024 | 2,400 | | | $125.54 | |
The total fair value of restricted stock and performance awards vested during the nine months ended September 30, 2024 and 2023 was $162.8 million and $159.9 million, respectively.
For restricted stock and performance awards, we recognized compensation expense of $47.7 million and $33.7 million during the three months ended September 30, 2024 and 2023, respectively, and $123.9 million and $153.6 million during the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there was $163.8 million of unrecognized compensation expense related to unvested restricted stock and performance awards that we expect to recognize over a weighted-average period of 1.9 years.
Stock Options
The following table summarizes stock option activity for the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | | | | | | |
| (in thousands) | | | | (years) | | (in millions) |
| | | | | | | |
Outstanding at December 31, 2023 | 921 | | | $99.54 | | | 5.0 | | $32.1 |
Granted | 168 | | | 127.99 | | | | | |
Forfeited | (70) | | | 153.24 | | | | | |
Exercised | (207) | | | 58.55 | | | | | |
Outstanding at September 30, 2024 | 812 | | | $111.34 | | | 5.6 | | $7.3 |
| | | | | | | |
Options vested and exercisable at September 30, 2024 | 551 | | | $108.22 | | | 4.1 | | $6.7 |
We recognized compensation expense for stock options of $2.0 million and $1.7 million during the three months ended September 30, 2024 and 2023, respectively, and $6.2 million and $15.5 million during the nine months ended September 30, 2024 and 2023, respectively. The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2024 and 2023 was $14.7 million and $8.7 million, respectively. As of September 30, 2024, we had $8.8 million of unrecognized compensation expense related to unvested stock options that we expect to recognize over a weighted-average period of 2.1 years.
The weighted-average grant-date fair value of stock options granted, including replacement awards granted in connection with the EVO acquisition, during the nine months ended September 30, 2024 and 2023 was $53.28 and $46.17, respectively. Fair value was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2024 | | September 30, 2023 |
| | | |
Risk-free interest rate | 4.13% | | 3.84% |
Expected volatility | 45% | | 45% |
Dividend yield | 0.90% | | 0.81% |
Expected term (years) | 5 | | 5 |
The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury securi