GLOBAL PAYMENTS INC 10-Q

ITEM 1—FINANCIAL STATEMENTS GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Three Months Ended March 31, 2023 March 31, 2022 Revenues $ 2,292,447 $ 2,156,254 Operating expenses: Cost of service 947,753 957,158 Selling, general and administrative 1,043,126 823,149 Loss on business dispositions 244,833 — 2,235,712 1,780,307 Operating income 56,735 375,947 Interest and other income 11,153 1,711 Interest and other expense ( 122,945 ) ( 93,283 ) ( 111,792 ) ( 91,572 ) (Loss) income before income taxes and equity in income of equity method investments ( 55,057 ) 284,375 Income tax (benefit) expense ( 31,399 ) 52,218 (Loss) income before equity in income of equity method investments ( 23,658 ) 232,157 Equity in income of equity method investments, net of tax 19,238 17,479 Net (loss) income ( 4,420 ) 249,636 Net income attributable to noncontrolling interests, net of tax ( 6,621 ) ( 4,903 ) Net (loss) income attributable to Global Payments $ ( 11,041 ) $ 244,733 (Loss) earnings per share attributable to Global Payments: Basic (loss) earnings per share $ ( 0.04 ) $ 0.87 Diluted (loss) earnings per share $ ( 0.04 ) $ 0.87 See Notes to Unaudited Consolidated Financial Statements. 4 Table of Content s GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Three Months Ended March 31, 2023 March 31, 2022 Net (loss) income $ ( 4,420 ) $ 249,636 Other comprehensive income (loss): Foreign currency translation adjustments 37,450 ( 32,960 ) Income tax (expense) benefit related to foreign currency translation adjustments ( 187 ) 670 Net unrealized (losses) gains on hedging activities ( 48,051 ) 8,934 Reclassification of net unrealized losses on hedging activities to interest expense 1,386 9,445 Income tax benefit (expense) related to hedging activities 10,950 ( 4,456 ) Other, net of tax ( 22 ) — Other comprehensive income (loss) 1,526 ( 18,367 ) Comprehensive (loss) income ( 2,894 ) 231,269 Comprehensive (income) loss attributable to noncontrolling interests ( 12,995 ) 441 Comprehensive (loss) income attributable to Global Payments $ ( 15,889 ) $ 231,710 See Notes to Unaudited Consolidated Financial Statements. 5 Table of Content s GLOBAL PAYMENTS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) March 31, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,001,671 $ 1,997,566 Accounts receivable, net 1,067,174 998,332 Settlement processing assets 1,575,515 2,519,114 Current assets held for sale 163,285 138,815 Prepaid expenses and other current assets 787,409 660,321 Total current assets 5,595,054 6,314,148 Goodwill 26,850,666 23,320,736 Other intangible assets, net 10,587,887 9,658,374 Property and equipment, net 2,023,463 1,838,809 Deferred income taxes 58,321 37,907 Noncurrent assets held for sale 1,058,649 1,295,799 Other noncurrent assets 2,464,604 2,343,241 Total assets $ 48,638,644 $ 44,809,014 LIABILITIES AND EQUITY Current liabilities: Settlement lines of credit $ 482,339 $ 747,111 Current portion of long-term debt 1,185,365 1,169,330 Accounts payable and accrued liabilities 2,514,616 2,442,560 Settlement processing obligations 1,799,999 2,413,799 Current liabilities held for sale 101,091 125,891 Total current liabilities 6,083,410 6,898,691 Long-term debt 16,534,074 12,289,248 Deferred income taxes 2,434,230 2,428,412 Noncurrent liabilities held for sale 4,691 4,478 Other noncurrent liabilities 699,410 647,975 Total liabilities 25,755,815 22,268,804 Commitments and contingencies Redeemable noncontrolling interests 556,070 — Equity: Preferred stock, no par value; 5,000,000 shares authorized and none issued — — Common stock, no par value; 400,000,000 shares authorized at March 31, 2023 and December 31, 2022; 261,770,665 issued and outstanding at March 31, 2023 and 263,081,872 issued and outstanding at December 31, 2022 — — Paid-in capital 19,839,506 19,978,095 Retained earnings 2,654,589 2,731,380 Accumulated other comprehensive loss ( 410,817 ) ( 405,969 ) Total Global Payments shareholders’ equity 22,083,278 22,303,506 Nonredeemable noncontrolling interests 243,481 236,704 Total equity 22,326,759 22,540,210 Total liabilities, redeemable noncontrolling interests and equity $ 48,638,644 $ 44,809,014 See Notes to Unaudited Consolidated Financial Statements. 6 Table of Content s GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Three Months Ended March 31, 2023 March 31, 2022 Cash flows from operating activities: Net (loss) income $ ( 4,420 ) $ 249,636 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 105,983 99,665 Amortization of acquired intangibles 301,267 329,007 Amortization of capitalized contract costs 29,336 25,906 Share-based compensation expense 89,566 38,399 Provision for operating losses and credit losses 29,859 28,523 Noncash lease expense 15,810 21,555 Deferred income taxes ( 160,040 ) ( 80,841 ) Equity in income of equity method investments, net of tax ( 19,238 ) ( 17,479 ) Facilities exit charges 5,164 — Loss on business dispositions 244,833 — Other, net 10,521 12,149 Changes in operating assets and liabilities, net of the effects of business combinations: Accounts receivable 30,767 ( 34,191 ) Settlement processing assets and obligations, net 248,710 48,198 Prepaid expenses and other assets ( 119,479 ) ( 115,904 ) Accounts payable and other liabilities ( 209,113 ) 25,377 Net cash provided by operating activities 599,526 630,000 Cash flows from investing activities: Business combinations and other acquisitions, net of cash and restricted cash acquired ( 4,046,785 ) ( 4,726 ) Capital expenditures ( 162,195 ) ( 156,102 ) Other, net 2,187 5 Net cash used in investing activities ( 4,206,793 ) ( 160,823 ) Cash flows from financing activities: Net (repayments of) borrowings from settlement lines of credit ( 281,411 ) 16,497 Net borrowings from commercial paper notes 1,048,620 — Proceeds from long-term debt 4,708,140 1,529,157 Repayments of long-term debt ( 1,555,954 ) ( 1,176,496 ) Payments of debt issuance costs ( 11,593 ) ( 1,706 ) Repurchases of common stock ( 202,785 ) ( 649,654 ) Proceeds from stock issued under share-based compensation plans 6,103 7,940 Common stock repurchased - share-based compensation plans ( 28,323 ) ( 26,295 ) Distributions to noncontrolling interests ( 6,218 ) ( 5,534 ) Dividends paid ( 65,750 ) ( 70,243 ) Net cash provided by (used in) financing activities 3,610,829 ( 376,334 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 18,584 ( 36,147 ) Increase in cash, cash equivalents and restricted cash 22,146 56,696 Cash, cash equivalents and restricted cash, beginning of the period 2,215,606 2,123,023 Cash, cash equivalents and restricted cash, end of the period $ 2,237,752 $ 2,179,719 See Notes to Unaudited Consolidated Financial Statements. 7 Table of Content s GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except per share data) Number of Shares Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Global Payments Shareholders’ Equity NonredeemableNoncontrolling Interests Total Equity Balance at December 31, 2022 263,082 $ 19,978,095 $ 2,731,380 $ ( 405,969 ) $ 22,303,506 $ 236,704 $ 22,540,210 Net (loss) income ( 11,041 ) ( 11,041 ) 6,621 ( 4,420 ) Other comprehensive income (loss) ( 4,848 ) ( 4,848 ) 6,374 1,526 Stock issued under share-based compensation plans 1,014 6,103 6,103 6,103 Common stock repurchased - share-based compensation plans ( 266 ) ( 30,189 ) ( 30,189 ) ( 30,189 ) Share-based compensation expense 89,566 89,566 89,566 Issuance of share-based awards in connection with a business combination 2,484 2,484 2,484 Repurchases of common stock ( 2,059 ) ( 206,553 ) ( 206,553 ) ( 206,553 ) Distributions to noncontrolling interest — ( 6,218 ) ( 6,218 ) Cash dividends declared ($ 0.25 per common share) ( 65,750 ) ( 65,750 ) ( 65,750 ) Balance at March 31, 2023 261,771 $ 19,839,506 $ 2,654,589 $ ( 410,817 ) $ 22,083,278 $ 243,481 $ 22,326,759 Number of Shares Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Global Payments Shareholders’ Equity Nonredeemable Noncontrolling Interests Total Equity Balance at December 31, 2021 284,750 $ 22,880,261 $ 2,982,122 $ ( 234,182 ) $ 25,628,201 $ 241,216 $ 25,869,417 Net income 244,733 244,733 4,903 249,636 Other comprehensive loss ( 13,023 ) ( 13,023 ) ( 5,344 ) ( 18,367 ) Stock issued under share-based compensation plans 1,395 7,940 7,940 7,940 Common stock repurchased - share-based compensation plans ( 195 ) ( 26,789 ) ( 26,789 ) ( 26,789 ) Share-based compensation expense 38,399 38,399 38,399 Repurchases of common stock ( 4,516 ) ( 561,725 ) ( 87,929 ) ( 649,654 ) ( 649,654 ) Distributions to noncontrolling interest — ( 5,534 ) ( 5,534 ) Cash dividends declared ($ 0.25 per common share) ( 70,243 ) ( 70,243 ) ( 70,243 ) Balance at March 31, 2022 281,434 $ 22,338,086 $ 3,068,683 $ ( 247,205 ) $ 25,159,564 $ 235,241 $ 25,394,805 See Notes to Unaudited Consolidated Financial Statements. 8 Table of Content s NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business, consolidation and presentation - We are a leading payments technology company delivering innovative software and services to our customers globally. Our technologies, services and team member expertise allow us to provide a broad range of solutions that enable our customers to operate their businesses more efficiently across a variety of channels around the world. We operate in three reportable segments: Merchant Solutions, Issuer Solutions and Consumer Solutions, which are described in "Note 15—Segment Information." Global Payments Inc. and its consolidated subsidiaries are referred to herein collectively as "Global Payments," the "Company," "we," "our" or "us," unless the context requires otherwise. These unaudited consolidated financial statements include our accounts and those of our majority-owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated balance sheet as of December 31, 2022 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022 but does not include all disclosures required by GAAP for annual financial statements. In the opinion of our management, all known adjustments necessary for a fair presentation of the results of the interim periods have been made. These adjustments consist of normal recurring accruals and estimates that affect the carrying amount of assets and liabilities. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. In particular, uncertainty resulting from global events and other macroeconomic conditions are difficult to predict at this time, and the ultimate effect could result in additional charges related to the recoverability of assets, including financial assets, long-lived assets and goodwill and other losses. These unaudited consolidated financial statements reflect the financial statement effects based upon management’s estimates and assumptions utilizing the most currently available information. NOTE 2— ACQUISITION EVO Payments, Inc. On March 24, 2023, we acquired all of the outstanding common stock of EVO Payments, Inc. (“EVO”). EVO is a leading payment technology and services provider, offering an array of payment solutions to merchants ranging from small and middle market enterprises to multinational companies and organizations across the Americas and Europe. The acquisition aligns with our technology-enabled payments strategy, expands our geographic presence and augments our business-to-business software and payment solutions business. Total purchase consideration was $ 4.3 billion, which consisted of the following (in thousands): Cash paid to EVO shareholders (1) $ 3,273,951 Cash paid for equity awards attributable to purchase consideration (2) 58,510 Value of replacement awards attributable to purchase consideration (3) 2,484 Total purchase consideration transferred to EVO shareholders 3,334,945 Repayment of EVO's unsecured revolving credit facility (including accrued interest and fees) 665,557 Payment of certain acquiree transaction costs and other liabilities on behalf of EVO (4) 269,118 Total purchase consideration $ 4,269,620 9 Table of Content s (1) Holders of EVO common stock, convertible preferred stock and common units received $ 34 for each share of EVO common stock held at the effective time of the transaction. (2) Pursuant to the merger agreement, we cash settled vested options and certain unvested equity awards of EVO equity award holders. (3) Pursuant to the merger agreement, we granted equity awards for approximately 0.3 million shares of Global Payments common stock to certain EVO equity awards holders. Each such replacement award is subject to the same terms and conditions (including vesting and exercisability or payment terms) that applied to the corresponding EVO equity award. We apportioned the fair value of the replacement awards between purchase consideration and amounts to be recognized in periods following the acquisition as share-based compensation expense over the requisite service period of the replacement awards. (4) Certain acquiree transaction costs and liabilities, including amounts outstanding under EVO’s tax receivable agreement, were required to be repaid by us upon consummation of the acquisition. The cash portion of the purchase consideration was funded through cash on hand and borrowings from our revolving credit facility. The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed as of March 31, 2023, including a reconciliation to the total purchase consideration, were as follows (in thousands): Cash and cash equivalents $ 324,859 Accounts receivable 105,680 Settlement processing assets 125,061 Deferred income tax assets 15,464 Property and equipment 83,540 Identifiable intangible assets 1,208,400 Other assets 157,166 Accounts payable and accrued liabilities ( 277,800 ) Settlement lines of credit ( 11,371 ) Settlement processing obligations ( 199,161 ) Deferred income tax liabilities ( 168,098 ) Other liabilities ( 58,089 ) Total identifiable net assets 1,305,651 Redeemable noncontrolling interests ( 556,070 ) Goodwill 3,520,039 Total purchase consideration $ 4,269,620 As of March 31, 2023, we considered these amounts to be provisional because we were still in the process of gathering and reviewing information to support the valuations of the assets acquired, liabilities assumed and related tax positions. Goodwill arising from the acquisition was included in the Merchant Solutions segment as of March 31, 2023 and was attributable to expected growth opportunities, potential synergies from combining the acquired business into our existing business and an assembled workforce. We expect that a portion of the goodwill from this acquisition will be deductible for income tax purposes. Due to the timing of the acquisition, we are still in the process of assigning goodwill to our reporting units. 10 Table of Content s The following table reflects the provisional estimated fair values of the identified intangible assets of EVO and their respective weighted-average estimated amortization periods: Estimated Fair Value Weighted-Average Estimated Amortization Periods (in thousands) (years) Customer-related intangible assets $ 641,000 10 Contract-based intangible assets 423,000 12 Acquired technologies 138,400 7 Trademarks and trade names 6,000 2 Total estimated identifiable intangible assets $ 1,208,400 10 The revenue and earnings of EVO from the acquisition date through March 31, 2023 were not material, nor were the historical revenue and earnings of EVO material for the purpose of presenting pro forma information. In addition, transaction costs associated with this business combination were not material. 11 Table of Content s NOTE 3— BUSINESS DISPOSITIONS Businesses Held for Sale Consumer Business. On April 26, 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our Consumer Solutions segment, for approximately $ 1 billion, subject to final closing adjustments. In connection with the sale, we provided seller financing consisting of a first lien seven-year secured term loan facility in an aggregate principal amount of $ 350 million bearing interest at a fixed annual rate of 9 % and a second lien twenty-five year secured term loan facility in an aggregate principal amount of $ 325 million bearing interest at a fixed annual rate of 13 %. In addition, we provided the purchasers a first lien five-year $ 50 million secured revolving facility available from the date of closing of the sale. The assets and liabilities of our consumer business were classified as held for sale and the disposal group was reported at fair value less costs to sell in our consolidated balance sheets as of March 31, 2023 and December 31, 2022. We recognized a loss on business dispositions in our consolidated statement of income of $ 244.8 million during the three months ended March 31, 2023 to reduce the carrying amount of the disposal group to estimated fair value less costs to sell. The loss during the three months ended March 31, 2023 included the effects of incremental negotiated closing adjustments, changes in the estimated fair value of the seller financing and the effects of the final tax structure of the transaction. Gaming Business. On April 1, 2023 , we completed the sale of our gaming business for approximately $ 400 million, including seller financing consisting of a 7-year unsecured promissory note in an aggregate principal amount of $ 32 million bearing interest at a fixed annual rate of 11 %, and subject to final closing adjustments. The assets and liabilities of our gaming business were classified as held for sale in our consolidated balance sheets as of March 31, 2023 and December 31, 2022. We expect to recognize a gain on the sale of approximately $ 100 million in the second quarter of 2023. Assets and Liabilities Held for Sale. The major classes of assets presented as held for sale in the consolidated balance sheet as of March 31, 2023 include cash of $ 88.7 million, accounts receivable of $ 16.1 million, other current assets of $ 58.4 million, goodwill of $ 529.5 million, other intangible assets of $ 717.9 million, property and equipment of $ 82.3 million, other noncurrent assets of $ 45.6 million and an asset group valuation allowance of $ 316.7 million. The major classes of liabilities presented as held for sale in the consolidated balance sheet as of March 31, 2023 include accounts payable and accrued liabilities of $ 101.1 million and other noncurrent liabilities of $ 4.7 million. The major classes of assets presented as held for sale in the consolidated balance sheet as of December 31, 2022, include cash of $ 70.6 million, accounts receivable of $ 18.4 million, other current assets of $ 42.3 million, goodwill of $ 529.5 million, other intangible assets of $ 717.9 million, property and equipment of $ 82.9 million, other noncurrent assets of $ 44.9 million and an asset group valuation allowance of $ 71.9 million. The major classes of liabilities presented as held for sale in the consolidated balance sheet as of December 31, 2022 include accounts payable and accrued liabilities of $ 125.9 million and other noncurrent liabilities of $ 4.5 million. 12 Table of Content s NOTE 4— REVENUES The following tables present a disaggregation of our revenues from contracts with customers by geography for each of our reportable segments for the three months ended March 31, 2023 and 2022 and have been recast to align with the change in the presentation of segment information during 2022 as further described in “Note 15 — Segment Information:” Three Months Ended March 31, 2023 Merchant Solutions Issuer Solutions Consumer Solutions Intersegment Eliminations Total (in thousands) Americas $ 1,365,894 $ 443,345 $ 143,709 $ ( 17,321 ) $ 1,935,627 Europe 176,098 117,104 — — 293,202 Asia Pacific 63,618 10,458 — ( 10,458 ) 63,618 $ 1,605,610 $ 570,907 $ 143,709 $ ( 27,779 ) $ 2,292,447 Three Months Ended March 31, 2022 Merchant Solutions Issuer Solutions Consumer Solutions Intersegment Eliminations Total (in thousands) Americas $ 1,242,620 $ 406,728 $ 169,115 $ ( 14,619 ) $ 1,803,844 Europe 174,055 122,011 — — 296,066 Asia Pacific 56,344 8,587 — ( 8,587 ) 56,344 $ 1,473,019 $ 537,326 $ 169,115 $ ( 23,206 ) $ 2,156,254 The following table presents a disaggregation of our Merchant Solutions segment revenues by distribution channel for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Relationship-led $ 795,680 $ 752,214 Technology-enabled 809,930 720,805 $ 1,605,610 $ 1,473,019 ASC Topic 606, Revenues from Contracts with Customers ("ASC 606") requires that we determine for each customer arrangement whether revenue should be recognized at a point in time or over time. For the three months ended March 31, 2023 and 2022, substantially all of our revenues were recognized over time. 13 Table of Content s Supplemental balance sheet information related to contracts from customers as of March 31, 2023 and December 31, 2022 was as follows: Balance Sheet Location March 31, 2023 December 31, 2022 (in thousands) Assets: Capitalized costs to obtain customer contracts, net Other noncurrent assets $ 332,417 $ 329,785 Capitalized costs to fulfill customer contracts, net Other noncurrent assets $ 166,497 $ 152,520 Liabilities: Contract liabilities, net (current) Accounts payable and accrued liabilities $ 223,675 $ 226,254 Contract liabilities, net (noncurrent) Other noncurrent liabilities $ 50,180 $ 45,613 Net contract assets were not material at March 31, 2023 or at December 31, 2022. Revenue recognized for the three months ended March 31, 2023 and 2022 from contract liability balances at the beginning of each period was $ 83.7 million and $ 84.1 million, respectively. ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. The purpose of this disclosure is to provide additional information about the amounts and expected timing of revenue to be recognized from the remaining performance obligations in our existing contracts. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at March 31, 2023. However, as permitted, we have elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. Accordingly, the total amount of unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amounts disclosed in the table below (in thousands): Year Ending December 31, 2023 $ 801,521 2024 844,665 2025 695,525 2026 569,521 2027 428,345 2028 196,636 2029 and thereafter 304,716 Total $ 3,840,929 14 Table of Content s NOTE 5— GOODWILL AND OTHER INTANGIBLE ASSETS As of March 31, 2023 and December 31, 2022, goodwill and other intangible assets consisted of the following: March 31, 2023 December 31, 2022 (in thousands) Goodwill $ 26,850,666 $ 23,320,736 Other intangible assets: Customer-related intangible assets $ 10,188,001 $ 9,524,922 Acquired technologies 3,004,005 2,863,731 Contract-based intangible assets 2,169,122 1,741,321 Trademarks and trade names 1,074,058 1,067,745 16,435,186 15,197,719 Less accumulated amortization: Customer-related intangible assets 3,329,392 3,155,838 Acquired technologies 1,778,936 1,692,762 Contract-based intangible assets 216,279 197,478 Trademarks and trade names 522,692 493,267 5,847,299 5,539,345 $ 10,587,887 $ 9,658,374 The following table sets forth the changes by reportable segment in the carrying amount of goodwill for the three months ended March 31, 2023: Merchant Solutions Issuer Solutions Consumer Solutions Total (in thousands) Balance at December 31, 2022 $ 13,816,945 $ 9,503,791 $ — $ 23,320,736 Goodwill acquired 3,520,039 — — 3,520,039 Effect of foreign currency translation 5,187 4,940 — 10,127 Measurement period adjustments ( 236 ) — — ( 236 ) Balance at March 31, 2023 $ 17,341,935 $ 9,508,731 $ — $ 26,850,666 Accumulated impairment losses for goodwill as of March 31, 2023 and December 31, 2022 were $ 833.1 million, of which $ 475.1 million related to the held for sale consumer business. 15 Table of Content s NOTE 6— LONG-TERM DEBT AND LINES OF CREDIT As of March 31, 2023 and December 31, 2022, long-term debt consisted of the following: March 31, 2023 December 31, 2022 (in thousands) 3.750 % senior notes due June 1, 2023 $ 550,845 $ 552,113 4.000 % senior notes due June 1, 2023 551,099 552,747 1.500 % senior notes due November 15, 2024 498,409 498,164 2.650 % senior notes due February 15, 2025 996,907 996,485 1.200 % senior notes due March 1, 2026 1,094,411 1,093,932 4.800 % senior notes due April 1, 2026 783,899 786,724 2.150 % senior notes due January 15, 2027 745,258 744,945 4.950 % senior notes due August 15, 2027 495,708 495,463 4.450 % senior notes due June 1, 2028 472,702 473,800 3.200 % senior notes due August 15, 2029 1,239,983 1,239,588 5.300 % senior notes due August 15, 2029 495,537 495,362 2.900 % senior notes due May 15, 2030 991,659 991,367 2.900 % senior notes due November 15, 2031 742,765 742,555 5.400 % senior notes due August 15, 2032 742,291 742,085 4.150 % senior notes due August 15, 2049 740,592 740,503 5.950 % senior notes due August 15, 2052 738,277 738,177 4.875 % senior notes due March 17, 2031 857,064 — 1.000 % convertible notes due August 15, 2029 1,447,292 1,445,225 Revolving credit facility 2,323,000 — Commercial paper notes 1,048,620 — Finance lease liabilities 30,871 32,435 Other borrowings 132,250 96,908 Total long-term debt 17,719,439 13,458,578 Less current portion 1,185,365 1,169,330 Long-term debt, excluding current portion $ 16,534,074 $ 12,289,248 The carrying amounts of our senior notes and convertible notes in the table above are presented net of unamortized discount and unamortized debt issuance costs, as applicable. At March 31, 2023, the unamortized discount on senior notes and convertible notes was $ 51.8 million, and unamortized debt issuance costs on senior notes and convertible notes were $ 89.2 million. At December 31, 2022, the unamortized discount on senior notes and convertible notes was $ 50.8 million and unamortized debt issuance costs on senior notes and convertible notes were $ 85.4 million. The portion of unamortized debt issuance costs related to revolving credit facilities is included in other noncurrent assets. At March 31, 2023 and December 31, 2022, unamortized debt issuance costs on the unsecured revolving credit facility were $ 22.3 million and $ 23.5 million, respectively. 16 Table of Content s At March 31, 2023, future maturities of long-term debt (excluding finance lease liabilities) are as follows by year (in thousands): Year Ending December 31, 2023 $ 1,147,502 2024 554,394 2025 1,009,577 2026 1,860,108 2027 4,635,269 2028 450,000 2029 and thereafter 8,117,160 Total $ 17,774,010 Senior Notes On March 17, 2023, we issued € 800 million aggregate principal amount of 4.875 % senior unsecured notes due March 2031 and received net proceeds of € 790.6 million, or $ 843.6 million based on the exchange rate on the issuance date. We issued the senior notes at a discount of $ 2.8 million, and we incurred debt issuance costs of $ 7.2 million, including underwriting fees, professional services fees and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at March 31, 2023. Interest on the senior unsecured notes is payable annually in arrears on March 17 of each year, commencing March 17, 2024. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. The net proceeds from the offering were used for general corporate purposes. Commercial Paper In January 2023, we established a $ 2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue. Commercial paper notes are expected to be issued at a discount from par, or they may bear interest, each at commercial paper market rates dictated by market conditions at the time of their issuance. The proceeds from issuances of commercial paper notes will be used primarily for general corporate purposes but may also be used for acquisitions, to pay dividends, for debt refinancing or for other purposes. As of March 31, 2023, we had net borrowings under our commercial paper program of $ 1,048.6 million outstanding, presented within long-term debt in our consolidated balance sheet based on our intent and ability to continually refinance on a long-term basis, with a weighted average annual in terest rate of 5.87 %. The commercial program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. As suc h, we could draw on the revolving credit facility to repay commercial paper notes that cannot be rolled over or refinanced with similar debt . Fair Value of Long-Term Debt As of March 31, 2023, our senior notes had a total carrying amount of $ 12.7 billion and an estimated fair value of $ 11.8 billion. The estimated fair value of our senior notes was based on quoted market prices in an active market and is considered to be a Level 1 measurement of the valuation hierarchy. As of March 31, 2023, our convertible notes had a total carrying amount of $ 1.4 billion and an estimated fair value of $ 1.5 billion. The estimated fair value of our convertible notes was based on a lattice pricing model and is considered to be a Level 3 measurement of the valuation hierarchy. The fair value of other long-term debt approximated its carrying amount at March 31, 2023. 17 Table of Content s Compliance with Covenants The convertible notes include customary covenants and events of default for convertible notes of this type. The revolving credit agreement contains customary affirmative covenants and restrictive covenants, including, among others, financial covenants based on net leverage and interest coverage ratios, and customary events of default. The required leverage ratio was increased to 4.50 to 1.00 as a result of the qualifying acquisition of EVO, which will remain in effect for up to eight consecutive quarters with a gradual step-down to 3.75 to 1.00, and the required interest coverage ratio is 3.00 to 1.00. We were in compliance with all applicable covenants as of March 31, 2023. Interest Expense Interest expense was $ 119.0 million and $ 89.3 million for the three months ended March 31, 2023 and 2022, respectively. NOTE 7— DERIVATIVES AND HEDGING INSTRUMENTS Net Investment Hedge We have designated our Euro-denominated senior notes as a hedge of our net investment in our Euro-denominated operations. The purpose of the net investment hedge is to reduce the volatility of our net investment in our Euro-denominated operations due to changes in foreign currency exchange rates. Investments in foreign operations with functional currencies other than the reporting currency are subject to foreign currency risk as the assets and liabilities of these subsidiaries are translated into the reporting currency at the period-end rate of exchange with the resulting foreign currency translation adjustment presented as a component of other comprehensive income and included in accumulated comprehensive income within equity in our consolidated balance sheets. Net investment hedge accounting offers protection from this risk, and the foreign currency remeasurement gains and losses associated with the Euro-denominated senior notes are presented within the same components of other comprehensive income and accumulated comprehensive income. As of March 31, 2023, an aggregate € 800 million related to our Euro-denominated senior notes due March 2031 was designated as a net investment hedge of our investment in Euro-denominated operations. We recognized a loss of $ 18.2 million within foreign currency translation adjustments in other comprehensive income in our consolidated statement of comprehensive income during the three months ended March 31, 2023. Interest Rate Swaps We have interest rate swap agreements with financial institutions to hedge changes in cash flows attributable to interest rate risk on a portion of our variable-rate debt instruments. In the first quarter of 2023, we entered into new interest rate swap agreements with an aggregate notional amount of $ 1.5 billion to convert eligible borrowings under our revolving credit facility from a floating term Secured Overnight Financing Rate to a fixed rate. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. Since we have designated the interest rate swap agreements as cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recorded as components of other comprehensive income. The fair values of our interest rate swaps were determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. These derivative instruments were classified within Level 2 of the valuation hierarchy. 18 Table of Content s The table below presents information about our interest rate swaps, designated as cash flow hedges, included in the consolidated balance sheets: Fair Values Derivative Financial Instruments Balance Sheet Location Weighted-Average Fixed Rate of Interest at March 31, 2023 Range of Maturity Dates at March 31, 2023 March 31, 2023 December 31, 2022 (in thousands) Interest rate swaps (Notional of $ 1.5 billion at March 31, 2023) Other noncurrent liabilities 4.26 % April 17, 2027 - August 17, 2027 $ 46,403 $ — The table below presents the effects of our interest rate swaps on the consolidated statements of income and statements of comprehensive income for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Net unrealized (losses) gains recognized in other comprehensive income (loss) $ ( 48,051 ) $ 8,934 Net unrealized losses reclassified out of other comprehensive income (loss) to interest expense $ 1,386 $ 9,445 As of March 31, 2023, the amount of net unrealized losses in accumulated other comprehensive loss related to our interest rate swaps that is expected to be reclassified into interest expense during the next 12 months was $ 0.4 million. NOTE 8— INCOME TAX For the three months ended March 31, 2023, we reported a tax benefit in excess of the U.S. statutory tax rate. The tax benefit included the favorable effect of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction. In addition, the tax benefit on the loss on business dispositions was tax effected at the applicable tax rate, whereas the earnings other than this discrete item were tax effected at the lower estimated annual effective tax rate. Our effective income tax rate for the three months ended March 31, 2022 was 18.4 %. Our effective income tax rates for the three months ended March 31, 2022 differed from the U.S. statutory rate primarily as a result of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law, which, among other things, implements a 15% corporate alternative minimum tax based on global adjusted financial statement income and a 1% excise tax on share repurchases effective beginning January 1, 2023. We do not expect the corporate alternative minimum tax will have a material effect on our reported results, cash flows or financial position. During the three months ended March 31, 2023, we reflected excise taxes of $ 2.3 million within equity as part of the price of common stock repurchased during the period. 19 Table of Content s NOTE 9— REDEEMABLE NONCONTROLLING INTERESTS Through the acquisition of EVO, we have certain redeemable noncontrolling interests related to the portion of equity in our consolidated subsidiaries in Poland, Chile, and Greece, not attributable, directly or indirectly, to us, that is redeemable upon the occurrence of an event that is not solely within our control. We own 66 % of our subsidiary in Poland. Under the shareholders agreement, the holder of the remaining 34 % of the shares has the option to compel us to purchase the shares held by the minority shareholder at a price per share based on the fair value of the shares. The option expires on January 1, 2024. We own 50.1 % of our subsidiary in Chile. Under the shareholders agreement, the holder of the remaining 49.9 % of the shares has the option to compel us to purchase those shares at a price per share based on the fair value of the shares. The option has no expiration date. We own 51 % of our subsidiary in Greece. Under the shareholders agreement, the holder of the remaining 49 % of the shares has the option, under certain limited circumstances, to compel us to purchase those shares at a price set forth in the agreement. In addition, beginning December 2025, the minority shareholder has the option to compel us to purchase those shares at a price per share based on the fair value of the shares. The options have no expiration date. Because the exercise of each of these redemption options is not solely within our control, the redeemable noncontrolling interests are presented in the mezzanine section between total liabilities and shareholders’ equity, as temporary equity, in our consolidated balance sheet as of March 31, 2023. We adjust the redeemable noncontrolling interests at each balance sheet date to reflect our estimate of the maximum redemption amounts with changes recognized as an adjustment to paid-in capital within equity in our consolidated balance sheets. Such estimates are based on projected operating performance of each subsidiary, and the key assumptions used in estimating the fair value include, but are not limited to, revenue growth rates and weighted-average cost of capital. Redeemable noncontrolling interests are carried at fair value on a recurring basis and are classified within Level 3 of the valuation hierarchy. The estimated fair value of the redeemable noncontrolling interests was $ 556.1 million as of the date of the acquisition of EVO and as of March 31, 2023. NOTE 10— SHAREHOLDERS’ EQUITY 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, 2023 and 2022, we repurchased and retired 2,058,902 and 4,515,626 shares of our common stock, respectively, at a cost, including commissions and applicable excise taxes, of $ 206.6 million and $ 649.7 million, or $ 100.33 and $ 143.95 per share, respectively. As of March 31, 2023, the remaining amount available under our share repurchase program was $ 1,295.7 million. On April 27, 2023, our board of directors declared a dividend of $ 0.25 per share payable on June 30, 2023 to common shareholders of record as of June 15, 2023. NOTE 11— SHARE-BASED AWARDS AND STOCK OPTIONS The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options: Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Share-based compensation expense $ 89,566 $ 38,399 Income tax benefit $ 9,417 $ 9,679 20 Table of Content s Share-Based Awards The following table summarizes the changes in unvested restricted stock and performance awards for the three months ended March 31, 2023: Shares Weighted-Average Grant-Date Fair Value (in thousands) Unvested at December 31, 2022 2,145 $ 159.04 Replacement awards 202 98.44 Granted 1,170 113.00 Vested ( 753 ) 167.81 Forfeited ( 33 ) 151.02 Unvested at March 31, 2023 2,731 $ 132.21 The total fair value of restricted stock and performance awards vested during the three months ended March 31, 2023 and March 31, 2022 was $ 126.5 million and $ 93.3 million, respectively. For restricted stock and performance awards, we recognized compensation expens e of $ 75.2 million and $ 35.1 million during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $ 265.4 million of unrecognized compensation expense related to unvested restricted stock and performance awards that we expect to recognize over a weighted-average period of 2.3 years. Stock Options The following table summarizes stock option activity for the three months ended March 31, 2023: Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) (years) (in millions) Outstanding at December 31, 2022 1,139 $ 111.75 5.4 $ 17.3 Replacement awards 142 98.44 Granted 195 113.12 Outstanding at March 31, 2023 1,476 $ 110.65 5.9 $ 20.9 Options vested and exercisable at March 31, 2023 1,019 $ 107.00 4.7 $ 20.9 We recognized compensation expense for stock options of $ 12.7 million and $ 1.8 million during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had $ 4.4 million of unrecognized compensation expense related to unvested stock options that we expect to recognize over a weighted-average period of 2.3 years. 21 Table of Content s The weighted-average grant-date fair value of stock options granted, including replacement awards granted in connection with the EVO acquisition, during the three months ended March 31, 2023 and 2022 was $ 47.08 and $ 48.88 , respectively. Fair value was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions: Three Months Ended March 31, 2023 March 31, 2022 Risk-free interest rate 3.86 % 1.87 % Expected volatility 45 % 40 % Dividend yield 0.81 % 0.56 % Expected term (years) 5 5 The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Our assumption on expected volatility was based on our historical volatility. The dividend yield assumption was determined using our average stock price over the preceding year and the annualized amount of our most current quarterly dividend per share. We based our assumptions on the expected term of the options on our analysis of the historical exercise patterns of the options and our assumption on the future exercise pattern of options. NOTE 12— EARNINGS PER SHARE Basic earnings per share ("EPS") was computed by dividing net income (loss) attributable to Global Payments by the weighted-average number of shares outstanding during the period. Earnings available to common shareholders was the same as reported net income (loss) attributable to Global Payments for all periods presented. Diluted EPS is computed by dividing net income (loss) attributable to Global Payments by the weighted-average number of shares outstanding during the period, including the effect of share-based awards, convertible notes or other potential securities that would have a dilutive effect on EPS. All stock options with an exercise price lower than the average market share price of our common stock for the period are assumed to have a dilutive effect on EPS. Due to a net loss for the three months ended March 31, 2023, no incremental shares were included in the computation of diluted earnings per share because the effect would be antidilutive. Approximately 1.2 million shares related to stock options and share-based awards were therefore excluded from the dilutive share base for the three months ended March 31, 2023. The dilutive share base for the three months ended March 31, 2022 excluded approximately 388,355 shares related to stock options that would have an antidilutive effect on the computation of diluted earnings per share. The effect of the potential shares needed to settle the conversion spread on the convertible notes is included in diluted EPS if the effect is dilutive. The effect depends on the market share price of our common stock at the time of conversion and would be dilutive if the average market share price of our common stock for the period exceeds the conversion price. For the three months ended March 31, 2023, the convertible notes were not included in the computation of diluted EPS as the effect would have been anti-dilutive. Further, the effect of the related capped call transactions is not included in the computation of diluted EPS as it is always anti-dilutive. 22 Table of Content s The following table sets forth the computation of diluted weighted-average number of shares outstanding for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Basic weighted-average number of shares outstanding 263,115 282,100 Plus: Dilutive effect of stock options and other share-based awards — 467 Diluted weighted-average number of shares outstanding 263,115 282,567 NOTE 13 - SUPPLEMENTAL BALANCE SHEET INFORMATION Cash, cash equivalents and restricted cash Cash and cash equivalents include cash on hand and all liquid investments with a maturity of three months or less when purchased. We regularly maintain cash balances with financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit or the equivalent outside the U.S. As of March 31, 2023, approximately 75 % of our total balance of cash and cash equivalents was held within a small group of financial institutions, primarily large money center banks. Although we currently believe that the financial institutions with whom we do business will be able to fulfill their commitments to us, there is no assurance that those institutions will be able to continue to do so. We have not experienced any losses associated with our balances in such accounts for the three months ended March 31, 2023. Restricted cash includes amounts that cannot be withdrawn or used for general operating activities under legal or regulatory restrictions. Restricted cash consists of amounts deposited by customers for prepaid card transactions at one of our Spain subsidiaries and funds held as a liquidity reserve at our Chilean and Greek subsidiaries that are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use. Restricted cash is included in prepaid expenses and other current assets in the consolidated balance sheets with a corresponding liability in accounts payable and accrued liabilities. A reconciliation of the amounts of cash and cash equivalents and restricted cash in the consolidated balance sheets to the amount in the consolidated statements of cash flows is as follows: March 31, 2023 December 31, 2022 (in thousands) Cash and cash equivalents $ 2,001,671 $ 1,997,566 Restricted cash included in prepaid expenses and other current assets 147,333 147,422 Cash included in assets held for sale 88,748 70,618 Cash, cash equivalents and restricted cash shown in the statement of cash flows $ 2,237,752 $ 2,215,606 Long-lived assets During the three months ended March 31, 2023, we entered into a new agreement to acquire software, of which $ 48.0 million was financed utilizing a five-year vendor financing arrangement. In connection with the completion of the EVO acquisition, we acquired right-of-use assets for operating leases of approximately $ 40.0 million, primarily related to real estate leases, and assumed the associated lease liabilities. As of March 31, 23 Table of Content s 2023, maturities of the acquired operating lease liabilities were as follows: $ 7.5 million in 2023, $ 9.9 million in 2024, $ 8.9 million in 2025, $ 8.0 million in 2026, $ 6.4 million in 2027, $ 3.2 million in 2028 and $ 1.3 million thereafter. NOTE 14— ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in the accumulated balances for each component of other comprehensive income (loss) were as follows for the three months ended March 31, 2023 and 2022: Foreign Currency Translation Gains (Losses) Unrealized Gains (Losses) on Hedging Activities Other Accumulated Other Comprehensive Loss (in thousands) Balance at December 31, 2022 $ ( 380,584 ) $ ( 22,420 ) $ ( 2,965 ) $ ( 405,969 ) Other comprehensive income (loss) 30,889 ( 35,715 ) — ( 4,848 ) Balance at March 31, 2023 $ ( 349,695 ) $ ( 58,135 ) $ ( 2,965 ) $ ( 410,817 ) Balance at December 31, 2021 $ ( 182,949 ) $ ( 48,490 ) $ ( 2,743 ) $ ( 234,182 ) Other comprehensive (loss) income ( 26,946 ) 13,923 — ( 13,023 ) Balance at March 31, 2022 $ ( 209,895 ) $ ( 34,567 ) $ ( 2,743 ) $ ( 247,205 ) Other comprehensive income (loss) attributable to noncontrolling interests, which relates only to foreign currency translation, was $ 6.4 million and $( 5.3 ) million for the three months ended March 31, 2023 and 2022, respectively. NOTE 15— SEGMENT INFORMATION During 2022, as a result of the pending divestiture of the consumer business and changes in how the business is managed, we realigned the businesses previously comprising our Business and Consumer Solutions segment to include the business-to-business portion within our Issuer Solutions segment and the consumer portion forming our new Consumer Solutions segment. Our three reportable segments now are: Merchant Solutions, Issuer Solutions and Consumer Solutions. The presentation of segment information for the three months ended March 31, 2022 has been recast to align with the segment presentation for the three months ended March 31, 2023. We evaluate performance and allocate resources based on the operating income of each operating segment. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Corporate. Impairment of goodwill and gains or losses on business dispositions are not included in segment operating income. Interest and other income, interest and other expense, income tax expense and equity in income of equity method investments, net of tax, are not allocated to the individual segments. We do not evaluate the performance of or allocate resources to our operating segments using asset data. The accounting policies of the reportable operating segments are the same as those described in our Annual Report on Form 10-K for the year ended December 31, 2022 and our summary of significant accounting policies in "Note 1—Basis of Presentation and Summary of Significant Accounting Policies." 24 Table of Content s Information on segments and reconciliations to consolidated revenues, consolidated operating income and consolidated depreciation and amortization were as follows for the three months ended March 31, 2023 and 2022: Three Months Ended March 31, 2023 March 31, 2022 (in thousands) Revenues : (1) Merchant Solutions $ 1,605,610 $ 1,473,019 Issuer Solutions 570,907 537,326 Consumer Solutions 143,709 169,115 Intersegment eliminations ( 27,779 ) ( 23,206 ) Consolidated revenues $ 2,292,447 $ 2,156,254 Operating income (loss) (1) : Merchant Solutions $ 507,210 $ 444,530 Issuer Solutions 82,810 69,142 Consumer Solutions ( 5,798 ) 22,618 Corporate (2) ( 282,654 ) ( 160,343 ) Loss on business dispositions ( 244,833 ) — Consolidated operating income $ 56,735 $ 375,947 Depreciation and amortization : (1) Merchant Solutions $ 241,573 $ 249,961 Issuer Solutions 160,853 154,545 Consumer Solutions — 17,847 Corporate 4,912 6,319 Consolidated depreciation and amortization $ 407,338 $ 428,672 (1) Revenues, operating income (loss) and depreciation and amortization reflect the effects of acquired businesses from the respective acquisition dates and the effects of divested businesses through the respective disposal dates. See “Note 2—Acquisition” and “Note 3—Business Dispositions” for further discussion. (2) Operating loss for Corporate included acquisition and integration expenses of $ 87.8 million and $ 48.2 million for the three months ended March 31, 2023 and 2022, respectively. NOTE 16— COMMITMENTS AND CONTINGENCIES Legal Matters We are party to a number of claims and lawsuits incidental to our business. In our opinion, the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on our financial position, liquidity, results of operations or cash flows. 25 Table of Content s