What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-01 compared with 2022-05-02 · 211 added, 99 removed, 145 unchanged (68% of the section changed)

10 unchanged sentences

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 have also recently commenced a strategic evaluation of the consumer portion of our Business and Consumer Solutions segment with the intent to focus on our growing business-to-business portfolio of assets.

Highlights related to our financial condition at March 31, 2022 and results of operations for the three months then ended include the following:

• Consolidated revenues for the three months ended March 31, 2022 increased to $2,156.3 million compared to $1,990.0 million for the prior year.

• Consolidated operating income for the three months ended March 31, 2022 increased to $375.9 million compared to $275.3 million for the prior year.

Operating margin for the three months ended March 31, 2022 increased to 17.4% compared to 13.8% for the prior year.

The increase in consolidated operating income and operating margin for the three months ended March 31, 2022 was primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and lower acquisition and integration expenses.

Effect of COVID-19 and Other Global Events

Highlights related to our financial condition at June 30, 2022 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, 2022 increased to $2,280.9 million and $4,437.2 million, respectively, compared to $2,137.4 million and $4,127.4 million, respectively, for the prior year.

The increase in consolidated revenues was primarily due to an increase in transaction volumes as a result of growth in customer base, acceleration in the use of digital payment solutions and continued economic recovery from the effects of the COVID-19 pandemic, slightly offset by the effects of unfavorable foreign currency exchange rates and lower spending volumes in our Business and Consumer Solutions segment as individual stimulus payments and supplementary unemployment amounts distributed to our customers by the U.S.

government in the first half of 2021 did not recur in 2022.

• During the first quarter of 2022, we commenced a strategic evaluation of the consumer portion of our Business and Consumer Solutions segment, and the consumer business met the criteria for classification as held for sale in our consolidated balance sheet as of June 30, 2022.

On July 31, 2022, we entered into a definitive agreement to sell the consumer business for $1 billion.

We will provide up to $675 million of seller financing and $80 million of future services in connection with the sale.

The transaction is expected to close prior to the end of the first quarter of 2023.

Consolidated operating loss for the three and six months ended June 30, 2022 included the effects of a $833.1 million goodwill impairment charge related to the Business and Consumer Solutions reporting unit.

• We sold our Merchant Solutions business in Russia effective April 29, 2022 for cash proceeds of $9 million and recognized a loss on sale of $127.2 million.

• Merchant Solutions segment operating income and operating margin for the three and six months ended June 30, 2022 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management.

Issuer Solutions segment operating income and operating margin for the three and six months ended June 30, 2022 decreased compared to the prior year primarily due to the effects of unfavorable foreign currency exchange rates.

Subsequent Events

Pending Business Acquisition and Related Bridge Facility

On August 1, 2022, we entered into a merger agreement to acquire all outstanding equity of EVO Payments, Inc.

(“EVO”) for $34 per share, or approximately $3.4 billion in preliminary estimated cash consideration to be transferred to EVO shareholders, which equates to an enterprise value of approximately $4 billion.

EVO is a leading payment technology and services provider, offering an array of innovative, reliable, and secure payment solutions to merchants ranging from small and middle market merchant enterprises to multinational companies and organizations across the Americas and Europe.

The acquisition aligns with our technology-enabled payments strategy, expands our geographic presence and augments our business-to-business software and payment solutions business.

The acquisition is expected to close prior to the end of first quarter of 2023, subject to regulatory and shareholder approvals.

In connection with our entry into the merger agreement, on August 1, 2022, we obtained commitments for a $4.3 billion, 364-day senior unsecured bridge facility (the "Bridge Facility").

The Bridge Facility establishes an unsecured capital structure under which we can refinance our Senior Unsecured Credit Facilities in order to pay the cash consideration to acquire all outstanding equity of EVO in accordance with the terms of the merger agreement, refinance certain outstanding indebtedness of EVO in connection with the acquisition and pay related transaction fees and expenses.

We expect to execute permanent financing prior to the closing of the acquisition that will eliminate the need for the Bridge Facility commitments.

Estimated fees associated with the Bridge Facility of $17.3 million will be amortized to interest expense through the expected date of termination of the Bridge Facility commitment.

Convertible Senior Notes

On August 1, 2022, we entered into an investment agreement with Silver Lake Partners relating to the issuance of $1.5 billion in aggregate principal amount of 1.0% convertible unsecured senior notes (‘Convertible Notes”) due 2029 in a private placement.

The interest rate of the Convertible Notes is fixed at 1.0% per annum and is payable semi-annually.

The Convertible Notes are convertible at the option of the holder after 18 months at a 15% conversion premium.

Upon conversion of the Convertible Notes, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.

In connection with the offering of the Convertible Notes, we expect to enter into a convertible note hedge transaction with certain bank counterparties whereby we have the option to purchase shares of our common stock.

In addition, we expect to sell warrants to certain bank counterparties whereby the holders of the warrants have the option to purchase shares of our common stock.

Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset the dilutive effect from the conversion of the Convertible Notes.

Effects of COVID-19 and Other Global Events

The COVID-19 pandemic has caused and may continue to cause significant disruptions to businesses and markets worldwide through the continued spread of the virus, including through a resurgence of COVID-19 cases or emergence of new virus variants in certain jurisdictions.

The pandemic and measures to prevent its spread have affected and may continue to affect our financial results in various geographic locations as a result of volatility in spending and transaction volumes as governments implement or ease restrictions in response to the virus.

While we continue to see signs of economic recovery, which has positively affected our financial results, 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 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, vaccine administration rates and efficacy, resurgence of COVID-19 cases and emergence of new virus variants and the direction or extent of current or future restrictive actions that may be imposed by governments or public health authorities.

We also continue to evaluate the potential effects on our business from other economic conditions and global events, including the situation in Ukraine and Russia that began in February 2022.

Invasion of Ukraine by Russia

We also continue to evaluate the potential effects on our business from other economic conditions and global events, including the ongoing Russia invasion of Ukraine that began in February 2022.

In response to the invasion of Ukraine by Russia, economic sanctions were imposed on individuals and entities in Russia, including financial institutions, by governments around the world, including the U.S.

and the European Union.

Our business in Russia represents an immaterial portion of our operations and financial results.

In 2021, Russia contributed less than one half of one percent of total consolidated revenues.

Prior to sale, our business in Russia represented an immaterial portion of our operations and financial results.

We have no team members or operations in Ukraine.

As a result of additional sanctions imposed in April 2022 that will affect our ability to continue normal operations in Russia, we sold our merchant business in Russia effective April 29, 2022.

Based on our current estimates, we expect to recognize a charge of approximately $130 million during the second quarter of 2022 associated with the sale.

The invasion of Ukraine by Russia and the sanctions and other measures imposed in response to this situation have increased the level of economic and political uncertainty in Russia and other areas of the world.

Risks associated with heightened geopolitical and economic instability include, among others, reduction in consumer, government or corporate spending, international sanctions, embargoes, heightened inflation, volatility in global financial markets and foreign currency rates, increased cyber disruptions and higher supply chain costs.

We continue to take actions to comply with all applicable restrictions and sanctions.

The extent to which the effects of the invasion of Ukraine by Russia will affect the global economy and our operations outside of Russia is difficult to predict at this time.

However, a significant escalation or expansion of the scope or of the related economic disruption could have an adverse effect on our business and financial results.

We also continue to monitor other potential effects on our financial statements as a result of these global developments, including fluctuations in foreign currency.

However, a significant escalation, expansion of the scope or continuation of the related economic disruption could have an adverse effect on our business and financial results.

Foreign Currency Exchange Rate Risk

We also continue to monitor other potential effects on our financial statements as a result of these and other global developments, including fluctuations in foreign currency and actions taken by central banks to counter inflation.

Certain of our operations are conducted in foreign currencies.

Recently, the US dollar has strengthened against certain foreign currencies in the markets in which we operate.

Consequently, a portion of our revenues and expenses may be affected by fluctuations in foreign currency exchange rates.

For the three months ended March 31, 2022, currency exchange rate fluctuations decreased our consolidated revenues by approximately $14.7 million and decreased our operating income by approximately $4.7 million, calculated by converting revenues and operating income for the current year in local currencies using exchange rates for the prior year.

A continuation or worsening of conditions could result in adverse effect on our future financial results;

Recently, the US dollar has strengthened against certain foreign currencies in the markets in which we operate.

For the three and six months ended June 30, 2022, currency exchange rate fluctuations decreased our consolidated revenues by approximately $42.2 million and $56.9 million, respectively, and decreased our operating income by approximately $11.7 million and $16.4 million, respectively, calculated by converting revenues and operating income for the current year in local currencies using exchange rates for the prior year.

A continuation or worsening of fluctuations in foreign currency exchange rates could result in an adverse effect on our future financial results;

however, we are unable to predict the extent of the potential effect on our financial results.

For a further discussion of trends, uncertainties and other factors that could affect our future operating results, see “Item 1A – Risk Factors” included in Item 1 of this Quarterly Report and the section entitled "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021.

For a further discussion of trends, uncertainties and other factors that could affect our future operating results, see the section entitled "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequent filings we make with the SEC, including this Quarterly Report on Form 10-Q.

Results of Operations

2 unchanged sentences

We evaluate performance and allocate resources based on the operating income of each operating segment.

During the first quarter of 2022, the recently acquired operations of MineralTree were reassigned to the Issuer Solutions segment to reflect how the business will be managed going forward.

As a result of the planned divestiture of the consumer portion of our Business and Consumer Solutions segment, we anticipate that we will realign the retained business-to-business portion of the Business and Consumer Solutions segment to the Issuer Solutions segment during the third quarter of 2022 to reflect how the business will be managed going forward.

We would begin reporting on the revised basis during the third quarter of 2022 and recast prior periods to reflect the change in segment reporting.

For further information about our reportable segments, see "Item 1.

Business—Business Segments" within our Annual Report on Form 10-K for the year ended December 31, 2021, 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 March 31, 2022 and 2021, 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, 2022 and 2021 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, 2022 and 2021, 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, 2022 and 2021 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Three Months Ended

March 31, 2022 % of Revenues (1)

June 30, 2022 % of Revenues (1)

Three Months Ended

March 31, 2021 % of Revenues (1)

June 30, 2021 % of Revenues (1)

$ Change % Change

9 unchanged sentences

Selling, general and administrative 863,179 37.8 % 838,569 39.2 % 24,610 2.9 %

Impairment of goodwill (4)

833,075 36.5 % — — % 833,075 NM

Loss on business dispositions (5)

152,211 6.7 % — — % 152,211 NM

Operating expenses $ 2,810,764 123.2 % $ 1,774,879 83.0 % $ 1,035,885 58.4 %

4 unchanged sentences

Corporate (3)

Operating income $ 375,947 17.4 % $ 275,259 13.8 % $ 100,688 36.6 %

(179,372) (7.9) % (191,824) (9.0) % 12,452 (6.5) %

Impairment of goodwill (4)

(833,075) (36.5) % — — % (833,075) NM

Loss on business dispositions (5)

(152,211) (6.7) % — — % (152,211) NM

Operating income (loss) $ (529,858) (23.2) % $ 362,558 17.0 % $ (892,416) (246.1) %

Operating margin (2) :

2 unchanged sentences

Business and Consumer Solutions 16.9 % 18.6 % (1.7) %

NM = Not meaningful

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

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

During the first quarter of 2022, the recently acquired operations of MineralTree were reassigned to the Issuer Solutions segment to reflect how the business will be managed going forward.

(3) Operating loss for Corporate included acquisition and integration expenses of $48.2 million and $90.1 million during the three months ended March 31, 2022 and 2021, respectively.

Consolidated revenues for the three months ended March 31, 2022 increased by 8.4% to $2,156.3 million compared to $1,990.0 million for the prior year.

The increase in revenues for the three months ended March 31, 2022 was primarily due to an increase in transaction volumes as a result of growth in customer base, acceleration in the use of digital payment solutions and continued economic recovery from the effects of the COVID-19 pandemic.

While we continue to see signs of economic recovery, which has positively affected our financial results in the first quarter of 2022 compared to the first quarter of 2021, the rate of recovery on a global basis has been and may continue to be affected by additional developments related to COVID-19.

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

For the three months ended June 30, 2022, the consumer business contributed $161.6 million to revenues and $21.9 million to operating income of the Business and Consumer Solutions segment.

For the three months ended June 30, 2021, the consumer business contributed $204.6 million to revenues and $33.9 million to operating income of the Business and Consumer Solutions segment.

See “Note 2—Acquisition” and “Note 3—Business Dispositions” for further discussion.

(3) Operating loss for Corporate included acquisition and integration expenses of $61.4 million and $76.8 million during the three months ended June 30, 2022 and 2021, respectively.

(4) During the three months ended June 30, 2022, consolidated operating loss included a $833.1 million goodwill impairment charge related to the Business and Consumer Solutions reporting unit.

See “Note 5—Goodwill and Other Intangible Assets” for further discussion.

(5) During the three months ended June 30, 2022, consolidated operating loss included a $127.2 million loss on the sale of our Merchant Solutions business in Russia and a charge for the estimated costs to sell our consumer business.

The following table sets forth key selected financial data for the six months ended June 30, 2022 and 2021, 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, 2022 and 2021 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Six Months Ended

June 30, 2022 % of Revenues (1)

Six Months Ended

June 30, 2021 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

Revenues (2) :

Merchant Solutions $ 3,054,735 68.8 % $ 2,694,627 65.3 % $ 360,108 13.4 %

Issuer Solutions 1,045,972 23.6 % 1,006,183 24.4 % 39,789 4.0 %

Business and Consumer Solutions 383,404 8.6 % 470,941 11.4 % (87,537) (18.6) %

Intersegment eliminations (46,951) (1.1) % (44,307) (1.1) % (2,644) 6.0 %

Consolidated revenues $ 4,437,160 100.0 % $ 4,127,444 100.0 % $ 309,716 7.5 %

Consolidated operating expenses (2) :

Cost of service $ 1,919,457 43.3 % $ 1,861,556 45.1 % $ 57,901 3.1 %

Selling, general and administrative 1,686,328 38.0 % 1,628,071 39.4 % 58,257 3.6 %

Impairment of goodwill (4)

833,075 18.8 % — — % 833,075 NM

Loss on business dispositions (5)

152,211 3.4 % — — % 152,211 NM

Operating expenses $ 4,591,071 103.5 % $ 3,489,627 84.5 % $ 1,101,444 31.6 %

Operating income (loss) (2) :

Merchant Solutions $ 979,889 22.1 % $ 777,283 18.8 % $ 202,606 26.1 %

Issuer Solutions 125,816 2.8 % 143,262 3.5 % (17,446) (12.2) %

Business and Consumer Solutions 65,385 1.5 % 104,205 2.5 % (38,820) (37.3) %

Corporate (3)

(339,715) (7.7) % (386,933) (9.4) % 47,218 (12.2) %

Impairment of goodwill (4)

(833,075) (18.8) % — — % (833,075) NM

Loss on business dispositions (5)

(152,211) (3.4) % — — % (152,211) NM

Operating income (loss) $ (153,911) (3.5) % $ 637,817 15.5 % $ (791,728) (124.1) %

Operating margin (2) :

Merchant Solutions 32.1 % 28.8 % 3.3 %

Issuer Solutions 12.0 % 14.2 % (2.2) %

Business and Consumer Solutions 17.1 % 22.1 % (5.0) %

NM = Not meaningful

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

For the six months ended June 30, 2022, the consumer business contributed $330.7 million to revenues and $44.6 million to operating income of the Business and Consumer Solutions segment.

For the six months ended June 30, 2021, the consumer business contributed $425.1 million to revenues and $87.6 million to operating income of the Business and Consumer Solutions segment.

See “Note 2—Acquisition” and “Note 3—Business Dispositions” for further discussion.

(3) Operating loss for Corporate included acquisition and integration expenses of $109.5 million and $167.0 million during the six months ended June 30, 2022 and 2021, respectively.

(4) During the six months ended June 30, 2022, consolidated operating loss included a $833.1 million goodwill impairment charge related to the Business and Consumer Solutions reporting unit.

See “Note 5—Goodwill and Other Intangible Assets” for further discussion.

(5) During the six months ended June 30, 2022, consolidated operating loss included a $127.2 million on the sale of our Merchant Solutions business in Russia and a charge for the estimated costs to sell our consumer business.

Consolidated revenues for the three and six months ended June 30, 2022 increased by 6.7% and 7.5%, respectively, to $2,280.9 million and $4,437.2 million, respectively, compared to $2,137.4 million and $4,127.4 million, respectively, for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes as a result of growth in customer base, acceleration in the use of digital payment solutions and continued economic recovery from the effects of the COVID-19 pandemic, partially offset by the effects of unfavorable foreign currency exchange rates.

While we continue to see signs of economic recovery, which has positively affected our financial results in 2022 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 as well as other global events and economic conditions.

Merchant Solutions Segment.

Revenues from our Merchant Solutions segment for the three months ended March 31, 2022 increased by 16.2% to $1,473.0 million compared to $1,267.9 million for the prior year.

Revenues from our Merchant Solutions segment for the three and six months ended June 30, 2022 increased by 10.9% and 13.4%, respectively, to $1,581.7 million and $3,054.7 million, respectively, compared to $1,426.8 million and $2,694.6 million, respectively, for the prior year.

The increase in revenues was partially offset by the effects of unfavorable foreign currency exchange rates of $28.8 million and $39.9 million for the three and six months ended June 30, 2022, respectively

Issuer Solutions Segment.

Revenues from our Issuer Solutions segment for the three months ended March 31, 2022 increased by 2.2% to $511.5 million compared to $500.3 million for the prior year.

The increase in revenues for the three months ended March 31, 2022 was primarily due to an increase in transaction volumes from continued economic recovery from the effects of the COVID-19 pandemic and the inclusion of the recently acquired MineralTree business within the Issuer Solutions Segment beginning with the first quarter of 2022.

Revenues from our Issuer Solutions segment for the three and six months ended June 30, 2022 increased by 5.6% and 4.0%, respectively, to $534.5 million and $1,046.0 million, respectively, compared to $505.9 million and $1,006.2 million, respectively, for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes from continued economic recovery from the effects of the COVID-19 pandemic and the inclusion of the recently acquired MineralTree business within the Issuer Solutions segment beginning with the first quarter of 2022.

The increase in revenues was partially offset by the effects of unfavorable foreign currency exchange rates of $12.8 million and $16.1 million for the three and six months ended June 30, 2022, respectively.

Business and Consumer Solutions Segment.

Revenues from our Business and Consumer Solutions segment for the three months ended March 31, 2022 were $195.8 million compared to $243.6 million for the prior year.

Revenues for the three months ended March 31, 2021 were favorably affected by additional spending volumes driven by individual stimulus payments and supplementary unemployment amounts distributed to our customers by the U.S.

government in the first quarter of 2021, which did not recur in the first quarter of 2022.

Revenues from our Business and Consumer Solutions segment for the three and six months ended June 30, 2022 were $187.6 million and $383.4 million, respectively, compared to $227.4 million and $470.9 million, respectively, for the prior year.

Revenues for the three and six months ended June 30, 2022 were affected by lower spending volumes as individual stimulus payments and supplementary unemployment amounts distributed to our customers by the U.S.

government in the first half of 2021 did not recur in 2022.

Operating Expenses

Cost of Service.

Cost of service for the three months ended March 31, 2022 increased by 3.4% to $957.2 million compared to $925.2 million for the prior year.

Cost of service as a percentage of revenues decreased to 44.4% for the three months ended March 31, 2022 compared to 46.5% for the prior year.

Cost of service for the three and six months ended June 30, 2022 increased by 2.8% and 3.1%, respectively, to $962.3 million and $1,919.5 million, respectively, compared to $936.3 million and $1,861.6 million, respectively, for the prior year.

Cost of service as a percentage of revenues decreased to 42.2% and 43.3%, respectively, for the three and six months ended June 30, 2022 compared to 43.8% and 45.1%, respectively, for the prior year.

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

The decrease in cost of service as a percentage of revenues was primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues.

Cost of service includes amortization of acquired intangibles, which were $329.0 million and $329.2 million for the three months ended March 31, 2022 and 2021, respectively.

Cost of service includes amortization of acquired intangibles, which were $327.4 million and $324.8 million for the three months ended June 30, 2022 and 2021, respectively, and $656.4 million and $654.0 million for the six months ended June 30, 2022 and 2021, respectively.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses for the three months ended March 31, 2022 increased by 4.3% to $823.1 million compared to $789.5 million for the prior year.

Selling, general and administrative expenses as a percentage of revenues decreased to 38.2% for the three months ended March 31, 2022 compared to 39.7% for the prior year.

Selling, general and administrative expenses for the three and six months ended June 30, 2022 increased by 2.9% and 3.6%, respectively, to $863.2 million and $1,686.3 million, respectively, compared to $838.6 million and $1,628.1 million, respectively, for the prior year.

Selling, general and administrative expenses as a percentage of revenues decreased to 37.8% and 38.0% for the three and six months ended June 30, 2022, respectively, compared to 39.2% and 39.4%, respectively, for the prior year.

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

The decrease in selling, general and administrative expenses as a percentage of revenues is primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and lower acquisition and integration expenses in the current year.

Selling, general and administrative expenses included acquisition and integration expenses of $51.0 million and $91.8 million for the three months ended March 31, 2022 and 2021, respectively.

Corporate expenses for the three months ended March 31, 2022 decreased by $34.8 million to $160.3 million compared to $195.1 million for the prior year.

The decrease for the three months ended March 31, 2022 was primarily due to lower acquisition and integration expenses, which were $48.2 million for the three months ended March 31, 2022 compared to $90.1 million for the three months ended March 31, 2021.

Operating Income and Operating Margin

Consolidated operating income for the three months ended March 31, 2022 increased to $375.9 million compared to $275.3 million for the prior year.

Operating margin for the three months ended March 31, 2022 increased to 17.4% compared to 13.8% for the prior year.

The increase in consolidated operating income and operating margin was primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and lower acquisition and integration expenses.

Selling, general and administrative expenses included acquisition and integration expenses of $61.8 million and $78.3 million for the three months ended June 30, 2022 and 2021, respectively, and $112.9 million and $170.1 million for the six months ended June 30, 2022 and 2021, respectively.

Corporate expenses for the three and six months ended June 30, 2022 decreased by $12.5 million and $47.2 million, respectively, to $179.4 million and $339.7 million, respectively, compared to $191.8 million and $386.9 million, respectively for the prior year.

The decrease was primarily due to lower acquisition and integration expenses, which were $61.4 million and $109.5 million for the three and six months ended June 30, 2022, respectively, compared to $76.8 million and $167.0 million for the three and six months ended June 30, 2021, respectively.

Operating Income (Loss) and Operating Margin

Consolidated operating loss and negative operating margin for the three and six months ended June 30, 2022 included the effects of the loss on the sale of our Merchant Solutions business in Russia and the goodwill impairment charge related to the Business and Consumer Solutions reporting unit, partially offset by the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and lower acquisition and integration expenses.

Segment Operating Income and Operating Margin

Operating income and operating margin in our Merchant Solutions segment for the three months ended March 31, 2022 increased compared to the three months ended March 31, 2021 primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued management of discretionary spending, slightly offset by incremental expenses related to continued investment in new product, innovation and our technology environments.

In our Issuer Solutions segment, operating income and operating margin for the three months ended March 31, 2022 decreased compared to the three months ended March 31, 2021 primarily due to the recently acquired operations of MineralTree.

In our Business and Consumer Solutions segment, operating income and operating margin for the three months ended March 31, 2021 were favorably affected by additional stimulus payments and supplementary unemployment amounts distributed by the U.S.

government in the first quarter of 2021, which did not recur in the first quarter of 2022.

In our Merchant Solutions segment, operating income and operating margin for the three and six months ended June 30, 2022 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management, slightly offset by incremental expenses related to continued investment in new product, innovation and our technology environments and the effects of unfavorable foreign currency exchange rates.

In our Issuer Solutions segment, operating income and operating margin for the three and six months ended June 30, 2022 decreased compared to the prior year primarily due to the effects of unfavorable foreign currency exchange rates and the recently acquired operations of MineralTree.

In our Business and Consumer Solutions segment, operating income and operating margin for the three and six months ended June 30, 2022 were unfavorably affected by lower spending volumes as individual stimulus payments and supplementary unemployment amounts distributed to our customers by the U.S.

government in the first half of 2021 did not recur in 2022.

Other Income/Expense, Net

Interest and other expense for the three months ended March 31, 2022 increased to $93.3 million compared to $83.1 million for the prior year, as a result of the increase in our average outstanding borrowings and higher average interest rates on outstanding borrowings, as the average LIBOR rate was higher during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Interest and other expense for the three and six months ended June 30, 2022 increased to $99.2 million and $192.5 million, respectively, compared to $80.6 million and $163.7 million, respectively, for the prior year, as a result of the increase

in our average outstanding borrowings and higher average interest rates on outstanding borrowings, as the average LIBOR rate was higher during the three and six months ended June 30, 2022 as compared to the prior year.

Income Tax Expense

Our effective income tax rate for the three months ended March 31, 2022 was 18.4%, and our effective income tax rate for the three months ended March 31, 2021 was 10.5%.

The increase in our effective tax rate for the three months ended March 31, 2022 was primarily the result of a change in the assessment of the need for a valuation allowance related to foreign credit carryforwards that favorably affected the rate for the three months ended March 31, 2021, and a lower tax benefit on share-based awards in the current year.

Net Income Attributable to Global Payments

Net income attributable to Global Payments increased to $244.7 million for the three months ended March 31, 2022 compared to $196.7 million for the prior year, reflecting the increase in operating income.

Diluted Earnings per Share

Diluted earnings per share was $0.87 for the three months ended March 31, 2022 compared to $0.66 for the prior year.

Diluted earnings per share for the three months ended March 31, 2022 reflects the increase in net income and the decrease in the weighted-average number of shares outstanding.

For the three and six months ended June 30, 2022, we incurred income tax expense in spite of reporting a loss before income taxes.

We recognized no tax benefit for the goodwill impairment charge and the loss on the sale of our Merchant Solutions business in Russia The effective tax rate for the six months ended June 30, 2021 included the favorable effect of a change in the assessment of the need for a valuation allowance related to foreign tax credit carryforwards that did not recur in the current year.

Net Income (Loss) Attributable to Global Payments

Net loss attributable to Global Payments was $673.0 million and $428.3 million, respectively, for the three and six months ended June 30, 2022 compared to net income of $263.6 million and $460.3 million, respectively, for the prior year, reflecting the changes in operating income (loss) and lower equity in income of equity method investments.

Equity in income of equity method investments for the three and six months ended June 30, 2022 included a decrease in fair value of investments held at certain investees, compared to appreciation in fair value of investments held at certain investees in the first half of 2021.

Diluted Earnings (Loss) per Share

Diluted loss per share was $2.42 and $1.53, respectively, for the three and six months ended June 30, 2022 compared to diluted earnings per share of $0.89 and $1.55, respectively, for the prior year.

Diluted loss per share for the three and six months ended June 30, 2022 reflects the changes in net income (loss) and the decrease in the weighted-average number of shares outstanding.

Liquidity and Capital Resources

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Accumulated cash balances are invested in high-quality, marketable short-term instruments.

At March 31, 2022, we had cash and cash equivalents totaling $2,045.3 million.

At June 30, 2022, we had cash and cash equivalents totaling $1,933.3 million.

Of this amount, we considered $700.8 million to be available for general purposes, of which $32.1 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States.

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Funds held for customers, which are not restricted in their use, include amounts collected before the corresponding obligation is due to be settled to or at the direction of our customers.

We also had restricted cash of $134.4 million as of March 31, 2022, representing amounts deposited by customers for prepaid card transactions.

We also had restricted cash of $165.8 million as of June 30, 2022, representing amounts deposited by customers for prepaid card transactions.

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

Operating activities provided net cash of $630.0 million and $599.4 million for the three months ended March 31, 2022 and 2021, 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 $1,198.1 million and $1,109.6 million for the six months ended June 30, 2022 and 2021, respectively, which reflect net loss adjusted for noncash items, including depreciation and amortization, charges associated with the impairment of goodwill and loss on business dispositions 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 an increase in earnings and an increase in accounts payable and other liabilities balances due to timing of month-end and transaction volume, partially offset by an increase in prepaid expenses and other assets as a result of additional capitalized contract costs, capitalized implementation costs associated with cloud computing arrangements and timing associated with other prepaid services.

We used net cash in investing activities of $160.8 million and $96.9 million during the three months ended March 31, 2022 and 2021, respectively, primarily to fund acquisitions and capital expenditures.

During the three months ended March 31, 2022 and 2021, we used cash of $4.7 million and $11.1 million, respectively, for acquisitions.

We made capital expenditures of $156.1 million and $86.2 million during the three months ended March 31, 2022 and 2021, respectively.

The increase in cash flows from operating activities from the prior year included an increase in net settlement processing obligations due to timing of month-end and transaction volume, partially offset by an increase in prepaid expenses and other assets as a result of additional capitalized contract costs, capitalized implementation costs associated with cloud computing arrangements and timing associated with other prepaid services.

We used net cash in investing activities of $363.7 million and $1,161.9 million during the six months ended June 30, 2022 and 2021, respectively, primarily to fund acquisitions and capital expenditures.

During the six months ended June 30, 2022 and 2021, we used cash of $9.9 million and $943.1 million, respectively, for acquisitions.

We made capital expenditures of $324.0 million and $219.6 million during the six months ended June 30, 2022 and 2021, respectively.

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

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We expect to continue to make significant capital investments in the business, and we anticipate capital expenditures to remain as a similar percentage of revenues for the year ending December 31, 2022 as compared to the year ended December 31, 2021.

Additionally, investing cash flows for the six months ended June 30, 2022 includes the net effect on cash from the sale of our Merchant Solutions business in Russia.

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 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 $376.3 million and $369.0 million during the three months ended March 31, 2022 and 2021, respectively.

Proceeds from long-term de bt were $1,529.2 million and $1,987.0 million for the three months ended March 31, 2022 and 2021, respectively.

Repayments of long-term debt were $1,176.5 million and $1,575.4 million for the three months ended March 31, 2022 and 2021, respectively.

We used net cash in financing activities of $742.7 million and $91.8 million during the six months ended June 30, 2022 and 2021, respectively.

Proceeds from long-term de bt were $2,954.2 million and $2,821.0 million for the six months ended June 30, 2022 and 2021, respectively.

Repayments of long-term debt were $2,276.5 million and $1,830.3 million for the six months ended June 30, 2022 and 2021, 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 three months ended March 31, 2022 and 2021, we had net borrowings from settlement lines of credit of $16.5 million and $108.5 million, respectively.

During the six months ended June 30, 2022 and 2021, we had net borrowings from settlement lines of credit of $4.1 million and $134.2 million, respectively.

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

During the three months ended March 31, 2022 and 2021, we used $649.7 million and $803.0 million, respectively, to repurchase shares of our common stock.

The activity for the three months ended March 31, 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 March 31, 2022, we had $1,707.0 million of share repurchase authority remaining under our share repurchase program.

We paid dividends to our common shareholders in the amounts of $70.2 million and $57.6 million during the three months ended March 31, 2022 and 2021, respectively.

Additionally, during the three months ended March 31, 2022, we made distributions to noncontrolling interests in the amount of $5.5 million.

During the six months ended June 30, 2022 and 2021, we used $1,250.0 million and $1,072.9 million, respectively, to repurchase shares of our common stock.

The activity for the six months ended June 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 June 30, 2022, we had $1,107.0 million of share repurchase authority remaining under our share repurchase program.

On July 28, 2022, 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 $139.3 million and $114.9 million during the six months ended June 30, 2022 and 2021, respectively.

Additionally, during the six months ended June 30, 2022, we made distributions to noncontrolling interests in the amount of $14.4 million and paid contingent consideration of $15.7 million related to a 2021 acquisition.

Long-Term Debt and Lines of Credit

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Senior Unsecured Credit Facilities

As of March 31, 2022, borrowings outstanding under the term loan and revolving credit facility were $2.0 billion and $0.4 billion, respectively.

As of June 30, 2022, borrowings outstanding under the term loan and revolving credit facility were $2.0 billion and $0.7 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 March 31, 2022, the total available commitments under the revolving credit facility were $1.7 billion.

As of June 30, 2022, the total available commitments under the revolving credit facility were $1.7 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, 2022, 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, 2022.

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

As of June 30, 2022, 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, 2022.

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, 2022, a total of $79.3 million of cash on deposit was used to determine the available credit.

As of March 31, 2022, we had $497.3 million outstanding under these lines of credit with additional capacity to fund settlement of $1.7 billion.

During the three months ended March 31, 2022, the maximum and average outstanding balances under these lines of credit were $814.7 million and $442.3 million, respectively.

The weighted-average interest rate on these borrowings was 2.29% at March 31, 2022.

As of June 30, 2022, a total of $81.2 million of cash on deposit was used to determine the available credit.

As of June 30, 2022, we had $469.5 million outstanding under these lines of credit with additional capacity to fund settlement of $1.8 billion.

During the three months ended June 30, 2022, the maximum and average outstanding balances under these lines of credit were $1,084.6 million and $470.1 million, respectively.

The weighted-average interest rate on these borrowings was 3.35% at June 30, 2022.

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.

Update to Critical Accounting Policies

Goodwill - We test goodwill for impairment at the reporting unit level annually and more often if an event occurs or circumstances change that indicate the fair value of a reporting unit may be below its carrying amount.

When applying the quantitative assessment, we determine the fair value of our reporting units based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach.

The income approach calculates a value based upon the present value of estimated future cash flows, while the market approach uses earnings multiples of similarly situated guideline public companies.

Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating margins used to calculate estimated future cash flows, risk-adjusted discount rates and future economic and market conditions.

The sustained decline in our share price and recent increases in discount rates, primarily resulting from increased economic uncertainty, indicated a potential decline in fair value and triggered a requirement to evaluate our Issuer Solutions and Business and Consumer Solutions reporting units for potential impairment as of June 30, 2022.

Further, the estimated sales price for the consumer business portion of our Business and Consumer Solutions reporting unit also indicated a potential decline in fair value as of June 30, 2022.

We determined on the basis of the quantitative assessment that the fair value of the Issuer Solutions reporting unit had declined since our last annual assessment;

however, it was still greater than its carrying amount by approximately 4% at June 30, 2022, indicating no impairment.

Based on the quantitative assessment of the Business and Consumer Solutions reporting unit, including consideration of the consumer business disposal group and the remaining assets of the reporting unit, we recognized a goodwill impairment charge of $833.1 million in our consolidated statement of income for the three and six months ended June 30, 2022.

We continue to closely monitor developments related to COVID-19 and other global events.

The future magnitude, duration and effects of these events are difficult to predict at this time, and it is reasonably possible that future developments could have a negative effect on the estimates and assumptions utilized in our goodwill impairment assessments and could result in material impairment charges in future periods.

Intangible and Long-lived Assets - We classify an asset or business as a held for sale disposal group if we have committed to a plan to sell the asset or business within one year and are actively marketing the asset or business in its current condition for a price that is reasonable in comparison to its estimated fair value.

Long-lived assets or disposal groups held for sale are reported at the lower of carrying amount or fair value less costs to sell.

Long-lived assets classified as held for sale are not subject to depreciation or amortization, and both the assets and any liabilities directly associated with the disposal group are presented within separate held for sale line items in our consolidated balance sheet.

Subsequent changes to the estimated selling price of an asset or disposal group held for sale are recorded as gains or losses in our consolidated statement of income and any subsequent gains are limited to the cumulative losses previously recognized.

Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted

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Forward-Looking Statements

Some of the statements we use in this report, and in some of the documents we incorporate by reference in this report, contain forward-looking statements concerning our business operations, economic performance and financial condition, including in particular:

including in particular:

our business strategy and means to implement the strategy;

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other operating metrics such as shares outstanding and capital expenditures;

the effects of the COVID-19 pandemic on our business;

our success and timing in developing and introducing new services and expanding our business;

and statements about the benefits of our acquisitions, including future financial and operating results, the company’s plans, objectives, expectations and intentions, and the successful integration of our acquisitions or completion of anticipated benefits and strategic initiatives.

the effects of the COVID-19 pandemic and other general economic conditions on our business;

statements about the strategic rationale and benefits of the proposed acquisition of EVO Payments, Inc.

(“EVO”), including future financial and operating results, the combined company’s plans, objectives, expectation and intentions and the expected timing of completion of the proposed transaction;

planned divestitures or strategic initiatives;

and our success and timing in developing and introducing new services and expanding our business.

You can sometimes identify forward-looking statements by our use of the words "believes," "anticipates," "expects," "intends," "plan," "forecast," "guidance" and similar expressions.

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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, and actions taken in response to, the COVID-19 pandemic and the evolving situation involving Ukraine and Russia;

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

difficulties, delays and higher than anticipated costs related to integrating the businesses of Global Payments and Total System Services, Inc., including with respect to implementing controls to prevent a material security breach of any internal systems or to successfully manage credit and fraud risks in business units;

foreign currency exchange, inflation and rising interest rate risks;

difficulties, delays and higher than anticipated costs related to integrating the businesses of acquired companies, including with respect to implementing controls to prevent a material security breach of any internal systems or to successfully manage credit and fraud risks in business units;

our ability to complete the proposed transaction with EVO on the proposed terms or on the proposed timeline, or at all, including risks and uncertainties related to securing the necessary regulatory and stockholder approvals and the satisfaction of other closing conditions;

the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive merger agreement relating to the transaction with EVO;

our ability to obtain the expected financing to the consummate the proposed transaction with EVO;

effects relating to the announcement of the proposed transaction with EVO, including on the market price of our common stock and our relationships with customers, employees and suppliers;

the risk of potential stockholder litigation associated with the proposed transaction with EVO;

the effect of a security breach or operational failure on the Company's business;

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our ability to safeguard our data;

risks associated with our indebtedness, foreign currency exchange and interest rate risks;

risks associated with our indebtedness;

our ability to meet environmental, social and governance targets, goals and commitments;

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the effects of new or changes in current laws, regulations, credit card association rules or other industry standards on us or our partners and customers, including privacy and cybersecurity laws and regulations;

and other events beyond our control, and other factors presented in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021 and this Quarterly Report on Form 10-Q, which we advise you to review.

and other events beyond our control, and other factors presented in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequent filings we make with the SEC, including this Quarterly Report on Form 10-Q, which we advise you to review.

These cautionary statements qualify all of our forward-looking statements, and you are cautioned not to place undue reliance on these forward-looking statements.

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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