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Item 2. Management’s Discussion and Analysis

2021-08-02 compared with 2021-05-04 · 154 added, 112 removed, 146 unchanged (65% of the section changed)

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Executive Overview

We are a leading pure play payments technology company delivering innovative software and services to our customers globally.

Our technologies, services and employee expertise enable us to provide a broad range of solutions that allow our customers to operate their businesses more efficiently across a variety of channels around the world.

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.

On September 18, 2019, we merged with Total System Services, Inc.

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We continue to execute on merger and integration activities, such as combining business operations, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures and realizing scale efficiencies.

We also continue to invest in software and hardware to support the development of new technologies, infrastructure to support our growing business and continued consolidation and enhancement of our operating platforms.

Highlights related to our financial condition at March 31, 2021 and results of operations for the three months then ended include the following:

• Consolidated revenues for the three months ended March 31, 2021 increased to $1,990.0 million, compared to $1,903.6 million for the prior year, primarily due to an increase in transaction volumes resulting from the easing of COVID-19 restrictions and incremental revenues in our Business and Consumer Solutions segment due to an increase in consumer spending, including additional spending volumes driven by stimulus payments distributed to our customers by the United States government in the first quarter of 2021.

• Consolidated operating income for the three months ended March 31, 2021 increased to $275.3 million, compared to $244.0 million for the prior year.

Operating margin for the three months ended March 31, 2021 increased to 13.8%, compared to 12.8% for the prior year.

The increase in consolidated operating income and operating margin for the three months ended March 31, 2021 is due to the increase in revenues and favorable effects of Merger-related cost synergies and cost-saving actions taken to mitigate the financial effects of the COVID-19 pandemic.

• On February 10, 2021, we entered into an accelerated share repurchase (“ASR”) agreement with a financial institution to repurchase an aggregate of $500 million of our common stock during the ASR program purchase period, which ended on March 31, 2021.

The total number of shares delivered under this ASR program was 2,491,161 shares at an average price of $200.71 per share.

We also continue to invest in software and hardware to support the development of new technologies, infrastructure to support our growing business and the continued consolidation and enhancement of our operating platforms.

Highlights related to our financial condition at June 30, 2021 and results of operations for the three and six months then ended include the following:

• Consolidated revenues for the three and six months ended June 30, 2021 increased to $2,137.4 million and $4,127.4 million, respectively, compared to $1,672.0 million and $3,575.6 million, respectively, for the prior year.

The increase in consolidated revenues is primarily due to an increase in transaction volumes as compared to the reduced transaction levels in the prior year driven by the effects of COVID-19.

We also saw sequential improvement from the first quarter of 2021 driven largely by the increase in transaction volumes from the continued easing of COVID-19 restrictions.

• Consolidated operating income for the three and six months ended June 30, 2021 increased to $362.6 million and $637.8 million, respectively, compared to $107.6 million and $351.6 million, respectively, for the prior year.

Operating margin for the three and six months ended June 30, 2021 increased to 17.0% and 15.5%, respectively, compared to 6.4% and 9.8%, respectively, for the prior year.

The increase in consolidated operating income and operating margin for the three and six months ended June 30, 2021 is primarily due to the increase in revenues and favorable effects of Merger-related cost synergies.

• 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 .

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.

• On February 26, 2021, we issued $1.1 billion aggregate principal amount of 1.200% senior unsecured notes due February 2026.

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Since that time, 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 continues to spread or has a resurgence in certain jurisdictions.

The pandemic and measures to prevent its spread affected our financial results during 2020 and continued to affect our financial results in the first quarter of 2021.

Spending and transaction volumes decreased beginning in mid-March 2020, as

governments implemented measures 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.

We saw improvement in our financial results and positive trends during the latter half of 2020 and into the first quarter of 2021 as certain governments began to gradually ease restrictions and provide economic stimulus and vaccine distribution accelerated, leading to an increase in spending and transaction volumes.

While we continue to see signs of economic recovery, the rate of recovery on a global basis has been affected by the reinstatement of restrictions in certain jurisdictions.

Early actions we took to preserve our available capital and provide financial flexibility in response to the effects of COVID-19 on our business, including the reduction of certain operating expenses, employee compensation costs, other discretionary spending and planned capital expenditures, added to the strength of our financial profile.

While we have discontinued many of these temporary actions, the effects of certain of these actions continue to have a favorable effect on our operating results.

We continue to closely monitor the evolving effects of the COVID-19 pandemic;

however, the implications on future global economic conditions and related effects on our business and financial condition are difficult to predict due to uncertainties around the ultimate severity, scope and duration of the pandemic, the availability and effectiveness of treatments or vaccines and the direction or extent of current or future restrictive actions that may be imposed by governments or public health authorities.

While we expect the COVID-19 pandemic will continue to have an adverse effect on our revenues and earnings in 2021, we do expect a recovery throughout the year.

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.

Beginning in mid-March 2020, our financial results were affected by decreased spending and transaction volumes, as governments implemented measures 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.

We saw improvement in our financial results and positive trends during the latter half of 2020 and into the first half of 2021 as certain governments began to gradually ease restrictions and provide economic stimulus and vaccine distribution accelerated, leading to an increase in spending and transaction volumes.

While we continue to see signs of economic recovery, which has positively affected our financial results in 2021 as compared to the prior year, the rate of recovery on a global basis has been and may continue to be affected by additional developments related to COVID-19.

Early actions we took to preserve our available capital and provide financial flexibility in response to the effects of COVID-19 on our business, including the temporary reduction of certain operating expenses, employee compensation costs, other discretionary spending and planned capital expenditures, added to the strength of our financial profile.

We continue to closely monitor the COVID-19 pandemic;

however, the implications on future global economic conditions and related effects on our business and financial condition are difficult to predict due to continuing uncertainties around the ultimate severity, scope and duration of the pandemic, the availability and effectiveness of treatments or vaccines, resurgence risk as new virus variants are identified and the direction or extent of current or future restrictive actions that may be imposed by governments or public health authorities.

While the COVID-19 pandemic may continue to have an adverse effect on our revenues and earnings in 2021, we currently expect a continued recovery throughout the year.

We expect to continue to make significant capital investments in the business, and we anticipate capital expenditures and other investments in the business during 2021 will return to pre-COVID-19 levels.

However, we continue to monitor the effects of COVID-19 and will adjust our future level of capital investments accordingly.

For a further discussion of trends, uncertainties and other factors that could affect our future operating results related to the effects of the COVID-19 pandemic, see the section entitled "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Business—Business Segments" within our Annual Report on Form 10-K for the year ended December 31, 2020, incorporated herein by reference, and "Note 12—Segment Information" in the notes to the accompanying unaudited consolidated financial statements.

The following table sets forth key selected financial data for the three months ended March 31, 2021 and 2020, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount.

The income statement data for the three months ended March 31, 2021 and 2020 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

The following table sets forth key selected financial data for the three months ended June 30, 2021 and 2020, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount.

The income statement data for the three months ended June 30, 2021 and 2020 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Three Months Ended

March 31, 2021 % of Revenues (1)

June 30, 2021 % of Revenues (1)

Three Months Ended

March 31, 2020 % of Revenues (1)

June 30, 2020 % of Revenues (1)

$ Change % Change

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(1) Percentage amounts may not sum to the total due to rounding.

(2) Operating loss for Corporate included acquisition and integration expenses of $90.1 million and $69.7 million during the three months ended March 31, 2021 and 2020, respectively.

Consolidated revenues for the three months ended March 31, 2021 increased by 4.5% to $1,990.0 million, compared to $1,903.6 million for the prior year.

Starting in mid-March 2020, COVID-19 began to have an unfavorable effect on our revenues.

We saw improvements throughout the latter half of 2020 and into the first quarter of 2021.

While revenues continue to be negatively affected by COVID-19, revenues for the three months ended March 31, 2021 increased as compared to the prior year primarily due to an increase in transaction volumes resulting from the easing of COVID-19 restrictions.

In addition, we saw incremental revenues in our Business and Consumer Solutions segment due to an increase in consumer spending, including additional spending volumes driven by individual stimulus payments distributed to our customers by the United States government in the first quarter of 2021.

Merchant Solutions Segmen t.

Revenues from our Merchant Solutions segment for the three months ended March 31, 2021 increased by 4.3% to $1,267.9 million, compared to $1,215.3 million for the prior year.

Starting in mid-March 2020, COVID-19 began to have an unfavorable effect on our revenues as a result of a reduction in spending and transaction volumes and restrictions on certain of our customer businesses throughout North America, Europe and Asia Pacific.

We saw improvement in our financial results during the latter half of 2020 and into the first quarter of 2021 as state and local governments in the United States and governments abroad began to gradually ease pandemic-related restrictions.

Revenues for the three months ended March 31, 2021 increased as compared to the prior year due to an increase in spending and transaction volumes resulting from the easing of COVID-19 restrictions.

While we continue to see signs of economic recovery, the rate of recovery on a global basis has been affected by the reinstatement of restrictions in certain jurisdictions.

(2) Revenues, operating income and depreciation and amortization reflect the effects of acquired businesses from the respective acquisition dates.

For further discussion of our acquisitions, see "Note 2—Acquisitions."

(3) Operating loss for Corporate included acquisition and integration expenses of $76.8 million and $80.7 million during the three months ended June 30, 2021 and 2020, respectively.

The following table sets forth key selected financial data for the six months ended June 30, 2021 and 2020, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount.

The income statement data for the six months ended June 30, 2021 and 2020 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Six Months Ended

June 30, 2021 % of Revenues (1)

Six Months Ended

June 30, 2020 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

Merchant Solutions $ 2,694,627 65.3 % $ 2,216,824 62.0 % $ 477,803 21.6 %

Issuer Solutions 1,006,183 24.4 % 973,787 27.2 % 32,396 3.3 %

Business and Consumer Solutions 470,941 11.4 % 420,668 11.8 % 50,273 12.0 %

Intersegment eliminations (44,307) (1.1) % (35,729) (1.0) % (8,578) 24.0 %

Consolidated revenues $ 4,127,444 100.0 % $ 3,575,550 100.0 % $ 551,894 15.4 %

Consolidated operating expenses :

Cost of service $ 1,861,556 45.1 % $ 1,827,611 51.1 % $ 33,945 1.9 %

Selling, general and administrative 1,628,071 39.4 % 1,396,386 39.1 % 231,685 16.6 %

Operating expenses $ 3,489,627 84.5 % $ 3,223,997 90.2 % $ 265,630 8.2 %

Operating income (loss) (2)(3) :

Merchant Solutions $ 777,283 18.8 % $ 479,231 13.4 % $ 298,052 62.2 %

Issuer Solutions 143,262 3.5 % 117,331 3.3 % 25,931 22.1 %

Business and Consumer Solutions 104,205 2.5 % 79,307 2.2 % 24,898 31.4 %

Corporate (386,933) (9.4) % (324,316) (9.1) % (62,617) 19.3 %

Operating income $ 637,817 15.5 % $ 351,553 9.8 % $ 286,264 81.4 %

Operating margin :

Merchant Solutions 28.8 % 21.6 % 7.2 %

Issuer Solutions 14.2 % 12.0 % 2.2 %

Business and Consumer Solutions 22.1 % 18.9 % 3.2 %

(1) Percentage amounts may not sum to the total due to rounding.

(2) Revenues, operating income and depreciation and amortization reflect the effects of acquired businesses from the respective acquisition dates.

For further discussion of our acquisitions, see "Note 2—Acquisitions."

(3) Operating loss for Corporate included acquisition and integration expenses of $167.0 million and $150.4 million during the six months ended June 30, 2021 and 2020, respectively.

Consolidated revenues for the three and six months ended June 30, 2021 increased by 27.8% and 15.4%, respectively, to $2,137.4 million and $4,127.4 million, respectively, compared to $1,672.0 million and $3,575.6 million, respectively, for the prior year.

Starting in mid-March 2020, COVID-19 began to have an unfavorable effect on transaction volumes, which had an unfavorable effect on our revenues for the three and six months ended June 30, 2020.

We saw improvements throughout the latter half of 2020 and into the first half of 2021, and revenues for the three and six months ended June 30, 2021 increased as compared to the prior year primarily due to an increase in transaction volumes resulting from the continued easing of COVID-19 restrictions.

Merchant Solutions Segment.

Revenues from our Merchant Solutions segment for the three and six months ended June 30, 2021 increased by 42.5% and 21.6%, respectively, to $1,426.8 million and $2,694.6 million, respectively, compared to $1,001.6 million and $2,216.8 million, respectively, for the prior year.

Starting in mid-March 2020, COVID-19 began to have an unfavorable effect on our revenues as a result of a reduction in transaction volumes and restrictions on certain of our customer businesses throughout North America, Europe and Asia Pacific.

We saw improvement in our financial results during the latter half of 2020 and into the first half of 2021 as certain governments began to gradually ease pandemic-related restrictions and consumer and business spending increased as a result of government stimulus payments.

Revenues for the three and six months ended June 30, 2021 increased as compared to the prior year due to an increase in transaction volumes as compared to the reduced transaction levels in the prior year driven by the effects of COVID-19.

We also saw sequential improvement from the first quarter of 2021, driven by the increase in transaction volumes from the continued easing of COVID-19 restrictions.

Issuer Solutions Segment.

Revenues from our Issuer Solutions segment for the three months ended March 31, 2021 were $500.3 million, compared to $503.8 million for the prior year.

Starting in mid-March 2020, COVID-19 had an unfavorable effect on our revenues as a result of lower transaction volumes, particularly related to the processing of commercial cards.

However, revenues were affected by lower transaction volumes in the majority of the first quarter of 2021 as compared to the pre-COVID-19 levels in the majority of the first quarter 2020.

While we continue to see signs of economic recovery, the rate of recovery on a global basis has been affected by the reinstatement of restrictions in certain jurisdictions.

Revenues from our Issuer Solutions segment for the three and six months ended June 30, 2021 increased by 7.6% and 3.3%, respectively, to $505.9 million and $1,006.2 million, respectively, compared to $470.0 million and $973.8 million, respectively, for the prior year.

Starting in mid-March 2020, COVID-19 began to have an unfavorable effect on our revenues as a result of lower transaction volumes, particularly related to the processing of commercial cards.

We saw improvement in our financial results during the latter half of 2020 and into the first half of 2021 as certain governments began to gradually ease pandemic-related restrictions.

The increase in revenues for the three and six months ended June 30, 2021 was primarily due to an increase in transaction volumes as compared to the reduced transaction levels in the prior year driven by the effects of COVID-19.

Business and Consumer Solutions Segment.

Revenues from our Business and Consumer Solutions segment for the three months ended March 31, 2021 increased by 19.4% to $243.6 million, compared to $203.9 million for the prior year.

Revenues from our Business and Consumer Solutions segment for the three and six months ended June 30, 2021 increased by 4.9% and 12.0%, respectively, to $227.4 million and $470.9 million, respectively, compared to $216.7 million and $420.7 million, respectively, for the prior year.

Our Business and Consumer Solutions segment experienced an unfavorable effect on revenues starting in mid-March 2020 due to reduced consumer spending as a result of COVID-19.

We saw improvement in our financial results throughout the latter half of 2020 and into the first quarter of 2021 from increases in consumer spending as state and local governments in the United States began to gradually ease restrictions.

Revenues for the three months ended March 31, 2021 increased as compared to the prior year due to an increase in consumer spending, including additional spending volumes driven by individual stimulus payments distributed to our customers by the United States government in the first quarter of 2021.

This unfavorable effect on our revenues for the three and six months ended June 30, 2020 was partially mitigated by revenues in the second quarter of 2020 from individual stimulus payments and supplementary unemployment insurance distributions to our customers resulting from the Coronavirus Aid, Relief and Economic Security Act.

We saw improvement in our financial results throughout the latter half of 2020 and into the first half of 2021 from increases in consumer spending as state and local governments in the United States began to gradually ease restrictions.

Increases in consumer spending also had a favorable effect on revenues during the six months ended June 30, 2021, including additional spending volumes driven by individual stimulus payments distributed to our customers by the United States government primarily during the first quarter and continuing into the early portion of the second quarter of 2021.

Operating Expenses

Cost of Service.

Cost of service for the three months ended March 31, 2021 decreased by 0.9%, to $925.2 million, compared to $933.9 million for the prior year.

Cost of service as a percentage of revenues decreased to 46.5% for the three months ended March 31, 2021, compared to 49.1% for the prior year period.

The decrease in cost of service is primarily due to the favorable effects of Merger-related cost synergies and cost-saving actions taken to mitigate the financial effects of the COVID-19 pandemic.

The decrease in cost of service was partially offset by an increase in amortization of acquired intangibles, which were $329.2 million and $314.2 million for the three months ended March 31, 2021 and 2020, respectively.

Cost of service as a percentage of revenues was also affected by the increase in revenues.

Cost of service for the three and six months ended June 30, 2021 increased by 4.8% and 1.9%, respectively, to $936.3 million and $1,861.6 million, respectively, compared to $893.7 million and $1,827.6 million, respectively, for the prior year.

Cost of service as a percentage of revenues decreased to 43.8% and 45.1% for the three and six months ended June 30, 2021, respectively, compared to 53.5% and 51.1%, respectively, for the prior year period.

The increase in cost of service is primarily due to higher variable costs associated with the increase in revenues.

The increase in costs of service also reflects an increase in amortization of acquired intangibles, which were $324.8 million and $314.0 million for the three months ended June 30, 2021 and 2020, respectively, and $654.0 million and $628.3 million for the six months ended June 30, 2021 and 2020, respectively.

The decrease in cost of service as a percentage of revenues is primarily due to the favorable effects of the increase in revenues and Merger-related cost synergies.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses for the three months ended March 31, 2021 increased by 8.8% to $789.5 million, compared to $725.7 million for the prior year.

Selling, general and administrative expenses as a percentage of revenues increased to 39.7%, for the three months ended March 31, 2021, compared to 38.1% for the prior year.

The increase in selling, general and administrative expenses is primarily due to an increase in variable

selling and other costs related to the increase in revenues, along with an increase in acquisition and integration expenses, which were $91.8 million and $71.6 million for the three months ended March 31, 2021 and 2020, respectively.

Corporate expenses for the three months ended March 31, 2021 increased by $44.5 million to $195.1 million, compared to $150.6 million for the prior year, primarily due to an increase in acquisition and integration expenses and higher share-based compensation expense of $20.4 million and $9.3 million, respectively.

During the three months ended March 31, 2021 and 2020, Corporate expenses included acquisition and integration expenses of $90.1 million, and $69.7 million, respectively, primarily due to the Merger.

Selling, general and administrative expenses for the three and six months ended June 30, 2021 increased by 25.0% and 16.6%, respectively, to $838.6 million and $1,628.1 million, respectively, compared to $670.6 million and $1,396.4 million, respectively, for the prior year.

Selling, general and administrative expenses as a percentage of revenues were 39.2% and 39.4% for the three and six months ended June 30, 2021, respectively, compared to 40.1% and 39.1%, respectively, for the prior year.

The increase in selling, general and administrative expenses is primarily due to an increase in variable selling and other costs related to the increase in revenues.

Selling, general and administrative expenses included acquisition and integration expenses of $78.3 million and $82.2 million for the three months ended June 30, 2021 and 2020, respectively and $170.1 million and $153.8 million for the six months ended June 30, 2021 and 2020, respectively.

Corporate expenses for the three and six months ended June 30, 2021 increased by $18.1 million and $62.6 million, respectively, to $191.8 million and $386.9 million, respectively, compared to $173.7 million and $324.3 million, respectively, for the prior year.

The increase for the three and six months ended June 30, 2021 is primarily due to higher employee compensation expense, including higher share-based compensation expense of $8.3 million and $17.7 million, respectively.

Employee compensation costs were lower in the prior year as a result of certain temporary cost-saving actions taken to help mitigate the financial effects of the COVID-19 pandemic.

The increase for the six months ended June 30, 2021 also included higher acquisition and integration expenses of $16.6 million.

During the three and six months ended June 30, 2021, Corporate expenses included acquisition and integration expenses of $76.8 million and $167.0 million, respectively, compared to $80.7 million and $150.4 million, respectively, for the prior year.

Certain of these Merger-related integration activities resulted in the recognition of employee termination benefits.

During the three months ended March 31, 2021 and 2020, Corporate expenses included charges for employee termination benefits of $25.2 million and $17.6 million, respectively, which included $0.5 million and $2.6 million, respectively, of share-based compensation expense.

As of March 31, 2021, the cumulative amount of recognized charges for employee termination benefits resulting from Merger-related integration activities was $165.6 million, which included $24.5 million of share-based compensation expense.

During the three months ended June 30, 2021 and 2020, Corporate expenses included charges for employee termination benefits of $13.1 million and $24.1 million, respectively, which included $0.7 million and $1.7 million, respectively, of share-based compensation expense.

During the six months ended June 30, 2021 and 2020, Corporate expenses included charges for employee termination benefits of $38.3 million and $41.7 million, respectively, which included $1.2 million and $4.2 million, respectively, of share-based compensation expense.

As of June 30, 2021, the cumulative amount of recognized charges for employee termination benefits resulting from Merger-related integration activities was $178.7 million, which included $25.2 million of share-based compensation expense.

We expect to incur additional charges as Merger–related integration activities continue in 2021.

Operating Income and Operating Margin

Consolidated operating income for the three months ended March 31, 2021 increased to $275.3 million, compared to $244.0 million for the prior year.

Operating margin for the three months ended March 31, 2021 increased to 13.8%, compared to 12.8% for the prior year.

The increase in consolidated operating income and operating margin for the three months ended March 31, 2021 is partially due to the increase in revenues.

We saw improvement in our financial results and positive trends throughout the latter half of 2020 and into the first quarter of 2021 as a result of the recovery seen across our markets as COVID-19 restrictions eased.

Further, Merger-related cost synergies and cost-saving actions taken to mitigate the financial effects of the COVID-19 pandemic had a favorable effect on operating income and operating margin for the three months ended March 31, 2021.

The increase in consolidated operating income and operating margin for the three months ended March 31, 2021 was partially offset by an increase in amortization of acquired intangibles and acquisition and integration expenses of $15.0 million and $20.0 million, respectively, compared to the prior year.

Consolidated operating income for the three and six months ended June 30, 2021 increased to $362.6 million and $637.8 million, respectively, compared to $107.6 million and $351.6 million, respectively, for the prior year.

Operating margin for the three and six months ended June 30, 2021 increased to 17.0% and 15.5%, respectively, compared to 6.4% and 9.8%, respectively, for the prior year.

The increase in consolidated operating income and operating margin for the three and six months ended June 30, 2021 was primarily due to the increases in revenues.

The unfavorable effects of COVID-19 on our revenues and incremental expenses directly related to COVID-19 contributed to the lower consolidated operating income and operating margin in the prior year.

We saw improvement in our financial results and positive trends throughout the latter half of 2020 and into the first half of 2021 as a result of the recovery seen across our markets as COVID-19 restrictions eased.

Further, Merger-related cost synergies had a favorable effect on operating income and operating margin for the three and six months ended June 30, 2021.

The increase in consolidated operating income and operating margin for the three and six months ended June 30, 2021 was partially offset by an increase in amortization of acquired intangibles of $10.8 million and $25.8 million, respectively, and an increase in employee compensation expense compared to the prior year, as a result of certain temporary

cost-saving actions taken in the prior year to help mitigate the financial effects of the COVID-19 pandemic.

Operating income and operating margin for the six months ended June 30, 2021 also reflects an increase in acquisition and integration expenses of $16.6 million compared to the prior year.

Segment Operating Income and Operating Margin .

Operating income and operating margin in each of our Merchant Solutions, Issuer Solutions and Business and Consumer Solutions segments increased compared to the prior year.

The increase in operating income and operating margin in our Merchant Solutions and Business and Consumer Solutions segments was partially due to the increase in revenues, including additional spending volumes in our Business and Consumer Solutions segment driven primarily by stimulus payments distributed to our customers by the United States government in the first quarter of 2021.

We saw improvement in our financial results and positive trends throughout the latter half of 2020 and into the first quarter of 2021 as a result of the recovery seen across our geographic markets as COVID-19 restrictions eased.

Further, across all of our segments, Merger-related cost synergies and cost-saving actions taken to mitigate the financial effects of the COVID-19 pandemic had a favorable effect on segment operating income and operating margin for the three months ended March 31, 2021.

Operating income and operating margin in our Merchant Solutions and Issuer Solutions segments for the three and six months ended June 30, 2021, and in our Business and Consumer Solutions segment for the six months ended June 30, 2021, increased compared to the prior year due to the increase in revenues.

We saw improvement in our financial results and positive trends throughout the latter half of 2020 and into the first half of 2021 as a result of the recovery seen across our geographic markets as COVID-19 restrictions eased and consumer and business spending increased as a result of government stimulus payments.

Further, across all of our segments, Merger-related cost synergies had a favorable effect on segment operating income and operating margin for the three and six months ended June 30, 2021.

In our Business and Consumer Solutions segment, operating income and operating margin for the three and six months ended June 30, 2020 included the favorable effect from our customers loading individual stimulus payments and supplementary unemployment insurance distributions during the second quarter of 2020, as well as lower costs associated with certain temporary cost-saving actions that were taken to help mitigate the financial effects of the COVID-19 pandemic.

Spending volumes driven by additional stimulus payments distributed by the United States government in early 2021 also had a favorable effect on operating income and operating margin, primarily in the first quarter of 2021.

Other Income/Expense, Net

Interest and other expense for the three months ended March 31, 2021 decreased by $9.5 million, to $83.1 million, compared to the prior year, primarily due to the recognition of a loss during the three months ended March 31, 2020 related to a decline in fair value for an investment held in a strategic partner that was subsequently divested.

Interest and other expense for the three and six months ended June 30, 2021 decreased by $2.3 million and $11.8 million, respectively, compared to the prior year, to $80.6 million and $163.7 million, respectively, primarily due to the recognition of a loss during the six months ended June 30, 2020 related to a decline in fair value for an investment held in a strategic partner that was subsequently divested.

Income Tax Expense

Our effective income tax rate for the three months ended March 31, 2021 was 10.5%, and our effective income tax rate for the three months ended March 31, 2020 was 10.1%.

Our effective income tax rates for the three months ended June 30, 2021 and 2020 were 21.2% and 3.0%, respectively, and our effective income tax rates for the six months ended June 30, 2021 and 2020 were 16.8% and 9.0%, respectively.

The increase in our effective tax rate for the three and six months ended June 30, 2021 from the prior year is primarily due to the effect of higher income before income taxes as compared to the prior year and the effect of enacted tax law changes in the U.K.

which required a remeasurement of deferred tax balances during the three months ended June 30, 2021.

The prior year effective tax rates were unusually low due to the effects of permanent differences on the lower income before income taxes, which drove a reduction in the estimated annual effective tax rate in the second quarter since the amounts of certain of our permanent differences do not vary with income before income taxes.

Net Income Attributable to Global Payments

Net income attributable to Global Payments increased to $196.7 million for the three months ended March 31, 2021 compared to $143.6 million for the prior year, reflecting the increase in operating income and additional equity in income of equity method investments.

Net income attributable to Global Payments increased to $263.6 million and $460.3 million for the three and six months ended June 30, 2021, respectively, compared to $37.3 million and $180.9 million, respectively, for the prior year, reflecting the increase in operating income and additional equity in income of equity method investments.

Equity in income of equity method investments increased primarily due to increases in transaction volumes and appreciation in fair market value of investments held at certain investees.

Diluted Earnings per Share

Diluted earnings per share was $0.66 for the three months ended March 31, 2021 compared to $0.48 for the prior year.

Diluted earnings per share for the three months ended March 31, 2021 reflects the increase in net income and a decrease in the weighted-average number of shares outstanding.

Diluted earnings per share was $0.89 and $1.55 for the three and six months ended June 30, 2021, respectively, compared to $0.12 and $0.60, respectively, for the prior year.

Diluted earnings per share for the three and six months ended June 30, 2021 reflects the increase in net income and a decrease in the weighted-average number of shares outstanding.

Liquidity and Capital Resources

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We believe that our current level of cash and borrowing capacity under our senior unsecured revolving credit facility, together with expected future cash flows from operations, will be sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future.

Early actions taken to preserve our available capital and provide financial flexibility in response to the effects of COVID-19 on our business, including the reduction of certain operating expenses, employee compensation costs, other discretionary spending and planned capital expenditures, continue to help mitigate the financial effects of the COVID-19 pandemic.

Early actions taken to preserve our available capital and provide financial flexibility in response to the effects of COVID-19 on our business, including the temporary reduction of certain operating expenses, employee compensation costs, other discretionary spending and planned capital expenditures, added to the strength of our financial profile.

We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future, through the issuance of debt or equity or by other means.

At March 31, 2021, we had cash and cash equivalents totaling $2,082.4 million.

At June 30, 2021, we had cash and cash equivalents totaling $1,799.5 million.

Of this amount, we considered $970.3 million to be available for general purposes, of which $33.3 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States.

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Funds held for customers and the corresponding liability include amounts collected prior to remittance to or at the direction of our customers.

We also had restricted cash of $119.7 million as of March 31, 2021, representing amounts deposited by customers for prepaid card transactions.

We also had restricted cash of $140.2 million as of June 30, 2021, representing amounts deposited by customers for prepaid card transactions.

These balances are considered cardholder funds held and are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use.

Operating activities provided net cash of $599.4 million and $436.6 million for the three months ended March 31, 2021 and 2020, respectively, which reflect net income adjusted for noncash items, including depreciation and amortization and changes in operating assets and liabilities.

Operating activities provided net cash of $1,109.6 million and $960.3 million for the six months ended June 30, 2021 and 2020, respectively, which reflect net income adjusted for noncash items, including depreciation and amortization and changes in operating assets and liabilities.

Fluctuations in operating assets and liabilities are affected primarily by timing of month-end and transaction volume, including changes in settlement processing assets and obligations.

The increase in cash flows from operating

activities from the prior year was primarily due to the increase in earnings after the adjustment for certain noncash items, including amortization of acquired intangibles and depreciation and amortization of property and equipment.

We used net cash in investing activities of $96.9 million and $169.7 million during the three months ended March 31, 2021 and 2020, respectively, primarily to fund acquisitions and capital expenditures.

During the three months ended March 31, 2021 and 2020, we used cash of $11.1 million and $67.2 million, respectively, for acquisitions.

We made capital expenditures of $86.2 million and $104.8 million during the three months ended March 31, 2021 and 2020, respectively.

These investments include software and hardware to support the development of new technologies, infrastructure to support our growing business and continued consolidation and enhancement of our operating platforms.

The increase in cash flows from operating activities from the prior year was primarily due to the increase in earnings after the adjustment for certain noncash items, including amortization of acquired intangibles and depreciation and amortization of property and equipment.

We used net cash in investing activities of $1,161.9 million and $270.3 million during the six months ended June 30, 2021 and 2020, respectively, primarily to fund acquisitions and capital expenditures.

During the six months ended June 30, 2021 and 2020, we used cash of $943.1 million and $74.1 million, respectively, for acquisitions.

We made capital expenditures of $219.6 million and $208.4 million during the six months ended June 30, 2021 and 2020, respectively.

These investments include software and hardware to support the development of new technologies, infrastructure to support our growing business and the continued consolidation and enhancement of our operating platforms.

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Our borrowing arrangements are further described in "Note 5—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, as well as cash distributions made to noncontrolling interests and our shareholders.

We used net cash in financing activities of $369.0 million and $77.5 million during the three months ended March 31, 2021 and 2020, respectively.

Proceeds from long-term debt were $1,987.0 million and $607.0 million for the three months ended March 31, 2021 and 2020, respectively.

Repayments of long-term debt were $1,575.4 million and $111.0 million for the three months ended March 31, 2021 and 2020, respectively.

We used net cash in financing activities of $91.8 million and $510.1 million during the six months ended June 30, 2021 and 2020, respectively.

Proceeds from long-term de bt were $2,821.0 million and $1,867.0 million for the six months ended June 30, 2021 and 2020, respectively.

Repayments of long-term debt were $1,830.3 million and $1,809.2 million for the six months ended June 30, 2021 and 2020, respectively.

Proceeds from and repayments of long-term debt consist of borrowings and repayments that we make with available cash, from time-to-time, under our revolving credit facility, as well as scheduled principal repayments we make on our term loans.

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We used the net proceeds from this offering to fund the redemption in full of the 3.800% senior unsecured notes due April 2021, to repay a portion of the outstanding indebtedness under our revolving credit facility and for general corporate purposes.

On May 15, 2020, we issued $1.0 billion aggregate principle senior unsecured notes.

We used the net proceeds from this offering to repay a portion of the outstanding indebtedness on our revolving credit facility and for general corporate purposes.

Activity under our settlement lines of credit is affected primarily by timing of month-end and transaction volume.

During the three months ended March 31, 2021, we had net borrowings from settlement lines of credit of $108.5 million.

During the three months ended March 31, 2020, we had net repayments of settlement lines of credit of $78.1 million.

We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase programs.

During the three months ended March 31, 2021 and 2020, we used $803.0 million and $421.2 million, respectively, to repurchase shares of our common stock.

As of March 31, 2021, we had $901.0 million of share repurchase authority remaining under our share repurchase program.

On February 10, 2021, we entered into an accelerated share repurchase (“ASR”) agreement with a financial institution to repurchase an aggregate of $500 million of our common stock during the ASR program purchase period, which ended on March 31, 2021.

The total number of shares delivered under this ASR program was 2,491,161 shares at an average price of $200.71 per share.

We paid dividends to our common shareholders in the amounts of $57.6 million and $58.3 million during the three months ended March 31, 2021 and 2020, respectively.

During the six months ended June 30, 2021, we had net borrowings from settlement lines of credit of $134.2 million.

During the six months ended June 30, 2020, we had net repayments of settlement lines of credit of $25.5 million.

We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase ("ASR") programs.

During the six months ended June 30, 2021 and 2020, we used $1,072.9 million and $421.2 million, respectively, to repurchase shares of our common stock.

The activity for the six months ended June 30, 2021 included repurchase of a total of 2,491,161 shares at an average price of $200.71 per share under an ASR program.

On February 10, 2021, we entered into an ASR agreement with a financial institution to repurchase an aggregate of $500 million of our common stock during the ASR program purchase period, which ended on March 31, 2021.

As of June 30, 2021, we had $611.0 million of share repurchase authority remaining under our share repurchase program.

On July 29, 2021, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $1.5 billion.

We paid dividends to our common shareholders in the amounts of $114.9 million and $116.6 million during the six months ended June 30, 2021 and 2020, respectively.

Long-Term Debt and Lines of Credit

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Interest on the senior notes is payable semi-annually at various dates.

Each series of the senior notes is

redeemable, at our option, in whole or in part, at any time and from time-to-time at the redemption prices set forth in the related indenture.

Each series of the senior notes is redeemable, at our option, in whole or in part, at any time and from time-to-time at the redemption prices set forth in the related indenture.

On February 26, 2021, we issued $1.1 billion in aggregate principal amount of 1.200% senior unsecured notes due March 2026.

We incurred debt issuance costs of approximately $8.6 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at March 31, 2021.

Interest on the notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 2021.

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Senior Unsecured Credit Facilities

As of March 31, 2021, borrowings outstanding under the term loan and revolving credit facility were $2.0 billion and $124.0 million, respectively.

As of June 30, 2021, borrowings outstanding under the term loan and revolving credit facility were $2.0 billion and $717.0 million, respectively.

We may issue standby letters of credit of up to $250 million in the aggregate under the revolving credit facility.

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The amounts available to borrow under the revolving credit facility are also determined by a financial leverage covenant.

As of March 31, 2021, the total available commitments under the revolving credit facility were $2.1 billion.

As of June 30, 2021, the total available commitments under the revolving credit facility were $2.3 billion.

Compliance with Covenants

The senior unsecured term loan and revolving credit facility contain customary conditions to funding, affirmative covenants, negative covenants, financial covenants and events of default.

As of March 31, 2021, financial covenants under the term loan facility required a leverage ratio of 3.50 to 1.00 and an interest coverage ratio of 3.00 to 1.00.

We were in compliance with all applicable covenants as of March 31, 2021.

As of June 30, 2021, financial covenants under the term loan facility required a leverage ratio of 3.50 to 1.00 and an interest coverage ratio of 3.00 to 1.00.

We were in compliance with all applicable covenants as of June 30, 2021.

Settlement Lines of Credit

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Accordingly, the amount of the outstanding lines of credit may exceed the stated credit limit.

As of March 31, 2021, a total of $53.9 million of cash on deposit was used to determine the available credit.

As of March 31, 2021, we had $459.4 million outstanding under these lines of credit with additional capacity to fund settlement of $1,361.5 million.

During the three months ended March 31, 2021, the maximum and average outstanding balances under these lines of credit were $820.9 million and $466.1 million, respectively.

The weighted-average interest rate on these borrowings was 2.09% at March 31, 2021.

As of June 30, 2021, a total of $57.3 million of cash on deposit was used to determine the available credit.

As of June 30, 2021, we had $487.5 million outstanding under these lines of credit with additional capacity to fund settlement of $1,393.9 million.

During the six months ended June 30, 2021, the maximum and average outstanding balances under these lines of credit were $813.8 million and $482.7 million, respectively.

The weighted-average interest rate on these borrowings was 2.05% at June 30, 2021.

See "Note 5—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements for further information about our borrowing agreements.

Commitments and Contractual Obligations

During the three months ended March 31, 2021, our commitments and contractual obligations increased from the amounts disclosed in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Commitments and Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2020.

During the six months ended June 30, 2021, our commitments and contractual obligations increased from the amounts disclosed in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Commitments and Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2020.

The increase primarily relates to the acquisition of software, technology infrastructure and related services.

Our estimated purchase obligations as of March 31, 2021 were $404.5 million during the remainder of 2021, $232.7 million during 2022, $334.0 million during 2023 and 2024, $339.0 million during 2025 and 2026 and $754.0 million thereafter for a total of $2,064.3 million.

Our estimated purchase obligations as of June 30, 2021 were $285.3 million during the remainder of 2021, $237.2 million during 2022, $305.3 million during 2023 and 2024, $335.7 million during 2025 and 2026 and $754.0 million thereafter for a total of $1,917.5 million.

Off-Balance Sheet Arrangements

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Our actual revenues, revenue growth rates and margins, other results of operations and shareholder values could differ materially from those anticipated in our forward-looking statements as a result of many known and unknown factors, many of which are beyond our ability to predict or control.

Important factors, among others, that may otherwise cause actual events or results to differ materially from those anticipated by such forward-looking statements or historical performance include the timing and severity of the effects of global economic, political, market, health and social events or other conditions, including the timing and severity of the effects of the COVID-19 pandemic;

regulatory measures or voluntary actions, including continued or prolonged social distancing, shelter-in-place orders, operating restrictions on businesses and similar measures imposed or undertaken in an effort to combat the spread of the COVID-19 pandemic;

Important factors, among others, that may otherwise cause actual events or results to differ materially from those anticipated by such forward-looking statements or historical performance include the effects of global economic, political, market, health and social events or other conditions, including the effects and duration of the COVID-19 pandemic and containment taken in response;

management’s assumptions and projections used in their estimates of the timing and severity of the effects of the COVID-19 pandemic on our future revenues, results of operations and liquidity;

our ability to meet our liquidity needs in light of the effects of the COVID-19 pandemic;

our ability to meet our liquidity needs in light of the effects of the COVID-19 pandemic or otherwise;

the outcome of any legal proceedings that may be instituted against the Company or our directors;

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the continued availability of capital and financing;

the business, economic and political conditions in the markets in which we operate;

increased competition in the markets in which we operate and our ability to increase our market share in existing markets and expand into new markets;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis