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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-02 · 129 added, 119 removed, 181 unchanged (58% of the section changed)

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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 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 .

We also continue to invest in new technology solutions, infrastructure to support our growing business and the continued consolidation and enhancement of our operating platforms.

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

• Consolidated revenues for the three and nine months ended September 30, 2021 increased to $2,202.3 million and $6,329.8 million, respectively, compared to $1,917.8 million and $5,493.4 million, respectively, for the prior year.

The increase in consolidated revenues is primarily due to an increase in transaction volumes from continued economic recovery as COVID-19 restrictions eased and acceleration in the use of digital payment solutions.

• Consolidated operating income for the three and nine months ended September 30, 2021 increased to $400.1 million and $1,037.9 million, respectively, compared to $290.4 million and $642.0 million, respectively, for the prior year.

Operating margin for the three and nine months ended September 30, 2021 increased to 18.2% and 16.4%, respectively, compared to 15.1% and 11.7%, respectively, for the prior year.

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

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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COVID-19 Update

In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic.

Since that time, the global economy has been, and continues to be, affected by COVID-19.

Since early 2020, the global economy has been, and continues to be, affected by the COVID-19 pandemic.

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 have seen improvement in our financial results during the latter half of 2020 and into 2021 as 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 to date 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.

At the onset of the pandemic, we took early actions 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, adding to the strength of our financial profile.

Certain operating expenses, capital expenditures and other investments in the business have recently returned to more normalized levels.

We expect to continue to make significant capital investments in the business while also continuing to manage other discretionary spending.

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.

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 13—Segment Information" in the notes to the accompanying unaudited consolidated financial statements.

The following table sets forth key selected financial data for the three months 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.

The following table sets forth key selected financial data for the three months ended September 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 September 30, 2021 and 2020 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Three Months Ended

June 30, 2021 % of Revenues (1)

September 30, 2021 % of Revenues (1)

Three Months Ended

June 30, 2020 % of Revenues (1)

September 30, 2020 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

Revenues (2) :

Merchant Solutions $ 1,495,898 67.9 % $ 1,243,961 64.9 % $ 251,937 20.3 %

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(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 $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)

(2) Revenues, consolidated operating expense, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates.

(3) Operating loss for Corporate included acquisition and integration expenses of $70.7 million and $57.6 million during the three months ended September 30, 2021 and 2020, respectively.

The following table sets forth key selected financial data for the nine months ended September 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 nine months ended September 30, 2021 and 2020 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Nine Months Ended

September 30, 2021 % of Revenues (1)

Nine Months Ended

September 30, 2020 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

Revenues (2) :

Merchant Solutions $ 4,190,524 66.2 % $ 3,460,785 63.0 % $ 729,739 21.1 %

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(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.

(2) Revenues, consolidated operating expense, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates.

(3) Operating loss for Corporate included acquisition and integration expenses of $237.7 million and $208.0 million during the nine months ended September 30, 2021 and 2020, respectively.

Consolidated revenues for the three and nine months ended September 30, 2021 increased by 14.8% and 15.2%, respectively, to $2,202.3 million and $6,329.8 million, respectively, compared to $1,917.8 million and $5,493.4 million, respectively, for the prior year.

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

We saw improvements throughout the latter half of 2020 and into 2021, and revenues for the three and nine months ended September 30, 2021 increased compared to the prior year primarily due to an increase in transaction volumes from continued economic recovery as COVID-19 restrictions eased and acceleration in the use of digital payment solutions.

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.

Revenues from our Merchant Solutions segment for the three and nine months ended September 30, 2021 increased by 20.3% and 21.1%, respectively, to $1,495.9 million and $4,190.5 million, respectively, compared to $1,244.0 million and $3,460.8 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.

Revenues for the three and nine months ended September 30, 2021 increased compared to the prior year due to an increase in transaction volumes from continued economic recovery as COVID-19 restrictions eased and acceleration in the use of digital payment solutions.

Issuer Solutions Segment.

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.

Revenues from our Issuer Solutions segment for the three and nine months ended September 30, 2021 increased by 7.1% and 4.6%, respectively, to $522.2 million and $1,528.3 million, respectively, compared to $487.4 million and $1,461.2 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.

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

The increase in revenues for the three and nine months ended September 30, 2021 was primarily due to an increase in transaction volumes from continued economic recovery as COVID-19 restrictions eased and growth in our output services of card and statement production.

Business and Consumer Solutions Segment.

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.

Revenues from our Business and Consumer Solutions segment for the three and nine months ended September 30, 2021 increased by 1.7% and 8.6%, respectively, to $207.7 million and $678.6 million, respectively, compared to $204.1 million and $624.8 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.

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.

We saw improvement in our financial results throughout the latter half of 2020 and into 2021 from increases in consumer spending driven by government stimulus programs and the gradual easing of COVID-19 related restrictions.

Increases in consumer spending had a favorable effect on revenues for the three and nine months ended September 30, 2021.

Additional spending volumes driven by further individual stimulus payments distributed to our customers by the United States government also had a favorable effect on revenues for the nine months ended September 30, 2021.

Our revenues for the nine months ended September 30, 2020 included the favorable effect of 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.

Operating Expenses

Cost of Service.

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.

Cost of service for the three and nine months ended September 30, 2021 increased by 4.8% and 2.8%, respectively, to $944.2 million and $2,805.7 million, respectively, compared to $900.9 million and $2,728.5 million, respectively, for the prior year.

Cost of service as a percentage of revenues decreased to 42.9% and 44.3% for the three and nine months ended September 30, 2021, respectively, compared to 47.0% and 49.7%, 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.

The increase in costs of service also reflects an increase in amortization of acquired intangibles, which were $319.9 million and $313.4 million for the three months ended September 30, 2021 and 2020, respectively, and $973.9 million and $941.7 million for the nine months ended September 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 increases in revenues and Merger-related cost synergies.

Selling, General and Administrative Expenses .

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.

Selling, general and administrative expenses for the three and nine months ended September 30, 2021 increased by 18.1% and 17.1%, respectively, to $858.1 million and $2,486.2 million, respectively, compared to $726.5 million and $2,122.9 million, respectively, for the prior year.

Selling, general and administrative expenses as a percentage of revenues were 39.0% and 39.3% for the three and nine months ended September 30, 2021, respectively, compared to 37.9% and 38.6%, 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.

The increase in selling, general and administrative expenses as a percentage of revenues is primarily due to an increase in share-based compensation expense of $23.3 million and $41.0 million for the three and nine months ended September 30, 2021, respectively.

The increase in share-based compensation expense was primarily driven by the vesting of certain performance-based restricted stock units upon achievement of performance measures during the period.

Higher acquisition and integration expenses also contributed to the increase in selling, general and administrative expenses as a percentage of revenues.

Selling, general and administrative expenses included acquisition and integration expenses of $71.6 million and $59.8 million for the three months ended September 30, 2021 and 2020, respectively, and $241.6 million and $213.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Corporate expenses for the three and nine months ended September 30, 2021 increased by $44.8 million and $107.5 million, respectively, to $201.2 million and $588.2 million, respectively, compared to $156.4 million and $480.7 million, respectively, for the prior year.

The increase for the three and nine months ended September 30, 2021 is primarily due to higher employee compensation expense, including an increase in share-based compensation expense of $23.3 million and $41.0 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.

Additionally, share-based compensation expense was higher in the current year primarily driven by the vesting of certain performance-based restricted stock units upon achievement of performance measures during the period.

Corporate expenses also included higher acquisition and integration expenses, which were $70.7 million and $237.7 million for the three and nine months ended September 30, 2021, respectively, compared to $57.6 million and $208.0 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 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.

During the three months ended September 30, 2021 and 2020, Corporate expenses included charges for employee termination benefits of $4.7 million and $8.1 million, respectively, which included $1.9 million of share-based compensation expense for the three months ended September 30, 2020.

During the nine months ended September 30, 2021 and 2020, Corporate expenses included charges for employee termination benefits of $43.0 million and $49.8 million, respectively, which included $1.2 million and $6.1 million, respectively, of share-based compensation expense.

As of September 30, 2021, the cumulative amount of recognized charges for employee termination benefits resulting from Merger-related integration activities was $183.4 million, which included $25.2 million of share-based compensation expense.

New obligations may arise and related expenses may be incurred as Merger-related integration activities continue in 2021.

Operating Income and Operating Margin

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.

Consolidated operating income for the three and nine months ended September 30, 2021 increased to $400.1 million and $1,037.9 million, respectively, compared to $290.4 million and $642.0 million, respectively, for the prior year.

Operating margin for the three and nine months ended September 30, 2021 increased to 18.2% and 16.4%, respectively, compared to 15.1% and 11.7%, respectively, for the prior year.

The increase in consolidated operating income and operating margin for the

three and nine months ended September 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.

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

The increase in consolidated operating income and operating margin for the three and nine months ended September 30, 2021 was partially offset by an increase in amortization of acquired intangibles of $6.5 million and $32.3 million, respectively, and an increase in acquisition and integration expenses of $14.8 million and $27.9 million, respectively, compared to the prior year.

Operating income and operating margin for the three and nine months ended September 30, 2021 also reflects 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 and higher share-based compensation expense in the current year associated with performance-based awards.

Segment Operating Income and Operating Margin .

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.

Operating income and operating margin in each of our Merchant Solutions, Issuer Solutions and Business and Consumer Solutions segments for the three and nine months ended September 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 2021 as a result of the recovery seen across our geographic markets as COVID-19 restrictions eased and consumer and business spending increased, in part 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 nine months ended September 30, 2021.

In our Business and Consumer Solutions segment, operating income and operating margin for the nine months ended September 30, 2021 were favorably affected by spending volumes driven by additional stimulus payments distributed by the United States government in early 2021, primarily in the first quarter of 2021, and operating income and operating margin for the nine months ended September 30, 2020 included the favorable effect from our customers loading individual stimulus payments and supplementary unemployment insurance distributions during the second quarter of 2020.

Other Income/Expense, Net

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.

Interest and other income for the three and nine months ended September 30, 2021 decreased by $23.7 million and $19.3 million, respectively, to $6.3 million and $16.0 million, respectively, compared to $30.0 million and $35.3 million, respectively, for the prior year.

The decrease was primarily due to the recognition of a gain during the three months ended September 30, 2020 of $27.3 million in connection with the partial release and conversion of our Visa convertible preferred shares.

See "Note 5—Other Assets" in the notes to the accompanying unaudited consolidated financial statements for further discussion of this transaction .

Income Tax Expense

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.

Our effective income tax rates for the three months ended September 30, 2021 and 2020 were 15.5% and 18.0%, respectively, and our effective income tax rates for the nine months ended September 30, 2021 and 2020 were 16.3% and 14.1%, respectively.

The decrease in our effective tax rate for the three months ended September 30, 2021 from the prior year is primarily due to the effect on the prior year effective rate of changes in uncertain tax positions and a change in the U.K.

statutory income tax rate that took effect during the three months ended September 30, 2020, which required a remeasurement of deferred tax balances to increase the effective tax rate.

The increase in our effective tax rate for the nine months ended September 30, 2021 from the prior year is primarily due to the effect of higher income before income taxes compared to the prior year and a change in the U.K.

statutory income tax rate that took effect during the nine months ended September 30, 2021, which required a remeasurement of deferred tax balances to increase the effective rate.

The 2021 U.K.

tax rate change had a more significant effect on our effective tax rate than the 2020 U.K.

tax rate change.

These effects were partially offset by a change in the assessment of the need for a valuation allowance related to foreign tax credit carryforwards in the current year.

Net Income Attributable to Global Payments

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.

Net income attributable to Global Payments increased to $296.7 million and $757.0 million for the three and nine months ended September 30, 2021, respectively, compared to $221.0 million and $401.9 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 value of investments held at certain investees.

Diluted Earnings per Share

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.

Diluted earnings per share were $1.01 and $2.56 for the three and nine months ended September 30, 2021, respectively, compared to $0.74 and $1.34, respectively, for the prior year.

Diluted earnings per share for the three and nine months ended September 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 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 June 30, 2021, we had cash and cash equivalents totaling $1,799.5 million.

At September 30, 2021, we had cash and cash equivalents totaling $2,347.7 million.

Of this amount, we considered $1,108.6 million to be available for general purposes, of which $32.6 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 $140.2 million as of June 30, 2021, representing amounts deposited by customers for prepaid card transactions.

We also had restricted cash of $120.9 million as of September 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 $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 $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.

Operating activities provided net cash of $2,027.6 million and $1,544.8 million for the nine months ended September 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 and accounts payable and other liabilities balances.

The increase in cash flows from operating activities from the prior year was primarily due to the increase in earnings, increase in accounts payable and other liabilities balances due to timing of month-end and transaction volume, partially offset by an increase in accounts receivable as a result of higher revenues in the current year.

We used net cash in investing activities of $1,295.9 million and $395.0 million during the nine months ended September 30, 2021 and 2020, respectively, primarily to fund acquisitions and capital expenditures.

During the nine months ended September 30, 2021 and 2020, we used cash of $946.4 million and $77.2 million, respectively, for acquisitions.

We made capital expenditures of $350.7 million and $329.4 million during the nine months ended September 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.

Capital expenditures and other investments in the business have recently returned to more normalized levels, and we expect to continue to make significant capital investments in the business.

We also expect cash outlays of approximately $900 million in connection with acquisitions anticipated to close in the fourth quarter of 2021 for which we have executed purchase agreements as of September 30, 2021.

Financing activities include borrowings and repayments under our various debt arrangements, as well as borrowings and repayments made under specialized lines of credit to fund daily settlement activities.

Our borrowing arrangements are further described in "Note 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 $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.

Our borrowing arrangements are further described in "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, cash distributions made to our shareholders and cash contributions from and distributions to noncontrolling interests.

We used net cash in financing activities of $310.2 million and $594.6 million during the nine months ended September 30, 2021 and 2020, respectively.

Proceeds from long-term de bt were $3,910.0 million and $1,868.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Repayments of long-term debt were $2,434.8 million and $1,829.6 million for the nine months ended September 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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Activity under our settlement lines of credit is affected primarily by timing of month-end and transaction volume.

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.

During the nine months ended September 30, 2021, we had net borrowings from settlement lines of credit of $244.9 million.

During the nine months ended September 30, 2020, we had net repayments of settlement lines of credit of $31.1 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.

During the nine months ended September 30, 2021 and 2020, we used $1,833.7 million and $421.2 million, respectively, to repurchase shares of our common stock.

The activity for the nine months ended September 30, 2021 included the repurchase of 2,491,161 shares at an average price of $200.71 per share under an ASR agreement we entered into on February 10, 2021 with a financial institution to repurchase an aggregate of $500 million of our common stock during the ASR program purchase period, which ended on March 31, 2021.

As of September 30, 2021, we had $949.2 million of share repurchase authority remaining under our share repurchase program.

We paid dividends to our common shareholders in the amounts of $188.2 million and $175.0 million during the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, Global Payments and a noncontrolling shareholder made contributions of $185.3 million and $46.3 million, respectively, to one of our majority-owned subsidiaries, Comercia Global Payments Entidad de Pago, S.L.

(“Comercia”).

Contributions were made to Comercia based on each shareholder's proportionate ownership to fund an acquisition by Comercia that closed in the fourth quarter of 2021.

Long-Term Debt and Lines of Credit

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

As of September 30, 2021, borrowings outstanding under the term loan and revolving credit facility were $2.0 billion and $1.2 billion, 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 June 30, 2021, the total available commitments under the revolving credit facility were $2.3 billion.

As of September 30, 2021, the total available commitments under the revolving credit facility were $1.8 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 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.

As of September 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 September 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 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.

As of September 30, 2021, a total of $75.6 million of cash on deposit was used to determine the available credit.

As of September 30, 2021, we had $588.3 million outstanding under these lines of credit with additional capacity to fund settlement of $1.5 billion.

During the nine months ended September 30, 2021, the maximum and average outstanding balances under these lines of credit were $1.3 billion and $493.3 million, respectively.

The weighted-average interest rate on these borrowings was 1.90% at September 30, 2021.

See "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements for further information about our borrowing agreements.

Commitments and Contractual Obligations

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.

During the nine months ended September 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 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.

Our estimated purchase obligations as of September 30, 2021 were $182.4 million during the remainder of 2021, $261.0 million during 2022, $333.7 million during 2023 and 2024, $345.2 million during 2025 and 2026 and $771.0 million thereafter for a total of $1,893.3 million.

Off-Balance Sheet Arrangements

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Although we believe that the plans and expectations reflected in or suggested by our forward-looking statements are reasonable, those statements are based on a number of assumptions, estimates, projections or plans that are inherently subject to significant risks, uncertainties and contingencies, many of which are beyond our control, cannot be foreseen and reflect future business decisions that are subject to change.

Accordingly, we cannot guarantee you that our plans and expectations will be achieved.

Accordingly, we cannot guarantee that our plans and expectations will be achieved.

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

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

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the ability to maintain Visa and Mastercard registration and financial institution sponsorship;

the ability to retain and hire key personnel;

the ability to retain

and hire key personnel;

the diversion of management’s attention from ongoing business operations;

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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