What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-01 compared with 2023-05-03 · 157 added, 111 removed, 173 unchanged (61% of the section changed)

14 unchanged sentences

The cash portion of the purchase consideration was funded through cash on hand and borrowings from our revolving credit facility.

• On April 26, 2023, we completed the sale of the consumer portion of our Netspend business for approximately $1 billion, subject to final closing adjustments.

In connection with the sale, we provided $675 million of seller financing and a first lien five-year $50 million secured revolving facility available from the date of closing of the sale.

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 related to the consumer business disposal group.

• On April 1, 2023, we completed the sale of our gaming business for approximately $400.0 million, including $32 million of seller financing, and subject to final closing adjustments.

We expect to recognize a gain on the sale of approximately $100 million in the second quarter of 2023.

• Our capital allocation priorities were supported by the successful issuance of new Euro-denominated senior notes and the launch of a new commercial paper program during the first quarter of 2023.

• On April 26, 2023, we completed the sale of the consumer portion of our Netspend business for approximately $1 billion, subject to certain closing adjustments.

In connection with the sale, we provided $675 million of seller financing and a five-year $50 million secured revolving facility available from the date of closing of the sale.

We recognized a gain (loss) on business dispositions in our consolidated statement of income of $1.6 million and $(243.2) million during the three and six months ended June 30, 2023, respectively, related to the consumer business disposal group.

• On April 1, 2023, we completed the sale of our gaming business for approximately $400.0 million, subject to certain closing adjustments.

In connection with the sale, we provided $32 million of seller financing.

We recognized a gain of $104.1 million during the three months ended June 30, 2023 in connection with the sale.

• Our capital allocation priorities were supported by the issuance of Euro-denominated senior notes and the launch of a commercial paper program during the first quarter of 2023.

◦ 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.

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The program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion on the revolving credit facility.

The proceeds from issuances of commercial paper notes will be used for acquisitions, to pay dividends, for debt refinancing or for other general corporate purposes.

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Highlights related to our financial condition at March 31, 2023 and results of operations for the three months then ended include the following:

• Consolidated revenues for the three months ended March 31, 2023 increased to $2,292.4 million compared to $2,156.3 million for the prior year.

The increase in consolidated revenues was primarily due to an increase in transaction volumes as a result of the increasing use of digital payment solutions, partially offset by the effects of unfavorable foreign currency exchange rates.

• Merchant Solutions segment and Issuer Solutions segment operating income and operating margin for the three months ended March 31, 2023 increased compared to the prior year primarily due to the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management.

These favorable effects were partially offset by the effects of unfavorable foreign currency exchange rates.

• Consolidated operating income for the three months ended March 31, 2023 included the unfavorable effects of the loss on business dispositions as described above and an increase in acquisition and integration expenses as compared to the prior year, primarily related to the acquisition of EVO.

The proceeds from issuances of

commercial paper notes will be used for acquisitions, to pay dividends, for debt refinancing or for other general corporate purposes.

Highlights related to our financial condition at June 30, 2023 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, 2023 increased to $2,452.5 million and $4,744.9 million, respectively, compared to $2,280.9 million and $4,437.2 million, respectively, for the prior year.

The increase in consolidated revenues was primarily due to an increase in transaction volumes and revenues from the recently acquired EVO business, partially offset by the effects on revenue of the divested businesses.

• Merchant Solutions segment operating income and Issuer Solutions segment operating income and operating margin for the three and six months ended June 30, 2023 increased compared to the prior year primarily due to the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management.

• Consolidated operating income for the three months ended June 30, 2023 included the favorable effects of the gain on sale of the gaming business disposition as described above, partially offset by an increase in acquisition and integration expenses as compared to the prior year, primarily related to the acquisition of EVO.

Consolidated operating income for the six months ended June 30, 2023 also included the effects of the loss on sale of the consumer business as described above.

Risks Related to Macroeconomic Conditions

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

For the three months ended March 31, 2023, currency exchange rate fluctuations decreased our consolidated revenues by approximately $30.4 million and decreased our operating income by approximately $10.7 million, calculated by converting revenues and operating income for the current year in local currencies using exchange rates for the prior year.

A continued strengthening of the US dollar or other significant fluctuations in foreign currency exchange rates could result in an adverse effect on our future financial results;

A continued strengthening of the U.S.

dollar or other significant 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.

3 unchanged sentences

However, as the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results.

In addition, recent failures of several financial institutions, including Silicon Valley Bank, have created uncertainty in the global financial markets and a greater focus on the potential failure of other banks in the future.

In addition, failures of several financial institutions, including Silicon Valley Bank and Credit Suisse, have created uncertainty in the global financial markets and a greater focus on the potential failure of other banks in the future.

Although we do not have exposure to and did not experience losses as a result of these failures, 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.

1 unchanged sentence

The occurrence of these events could negatively affect our business, financial condition and results of operations.

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, 2022 and subsequent filings we make with the SEC, including this Quarterly Report on Form 10-Q.

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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, 2022 and subsequent filings we make with the SEC.

Results of Operations

During 2022, as a result of the pending divestiture of our 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.

During 2022, as a result of then pending divestiture of our 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 Consumer Solutions segment.

The presentation of segment information for the three months ended June 30, 2022 has been recast to align with the segment presentation for the three months ended June 30, 2023.

As described in “Note 3 – Business Dispositions” in the notes to the accompanying unaudited consolidated financial statements, during the second quarter of 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our former Consumer Solutions segment.

Our reportable segments now include:

Merchant Solutions and Issuer Solutions.

Our former Consumer Solutions segment is presented below for periods prior to disposition.

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, 2022, incorporated herein by reference, and “Note 15—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, 2023 and 2022, 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, 2023 and 2022 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, 2023 and 2022, 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, 2023 and 2022 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 — Financial Statements.

Three Months Ended

March 31, 2023 % of Revenues (1)

June 30, 2023 % of Revenues (1)

Three Months Ended

March 31, 2022 % of Revenues (1)

June 30, 2022 % of Revenues (1)

$ Change % Change

3 unchanged sentences

Issuer Solutions 590,441 24.1 % 559,639 24.5 % 30,802 5.5 %

Consumer Solutions 143,709 6.3 % 169,115 7.8 % (25,406) (15.0) %

Consumer Solutions 39,031 1.6 % 161,629 7.1 % (122,598) NM

Intersegment eliminations (19,296) (0.8) % (22,078) (1.0) % 2,782 (12.6) %

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Selling, general and administrative 1,013,514 41.3 % 863,179 37.8 % 150,335 17.4 %

Loss on business dispositions 244,833 10.7 % — — % 244,833 NM

Impairment of goodwill — — % 833,075 36.5 % (833,075) NM

(Gain) loss on business dispositions (105,738) (4.3) % 152,211 6.7 % (257,949) NM

Operating expenses $ 1,849,728 75.4 % $ 2,810,764 123.2 % $ (961,036) (34.2) %

2 unchanged sentences

Issuer Solutions 95,701 3.9 % 77,499 3.4 % 18,202 23.5 %

Consumer Solutions 1,890 0.1 % 21,942 1.0 % (20,052) NM

Corporate (3)

(204,136) (8.3) % (179,372) (7.9) % (24,764) 13.8 %

Impairment of goodwill — — % (833,075) (36.5) % 833,075 NM

Gain (loss) on business dispositions 105,738 4.3 % (152,211) (6.7) % 257,949 NM

Operating income (loss) $ 602,741 24.6 % $ (529,858) (23.2) % $ 1,132,599 NM

Operating margin (2) :

Merchant Solutions 32.8 % 33.8 % (1.0) %

Issuer Solutions 16.2 % 13.8 % 2.4 %

Consumer Solutions 4.8 % 13.6 % (8.8) %

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 and the effects of divested businesses through the respective disposal dates.

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

(3) Operating loss for Corporate included acquisition and integration expenses of $60.2 million and $61.4 million for the three months ended June 30, 2023 and 2022, respectively.

The following table sets forth key selected financial data for the six months ended June 30, 2023 and 2022, 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, 2023 and 2022 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 — Financial Statements.

Six Months Ended

June 30, 2023 % of Revenues (1)

Six Months Ended

June 30, 2022 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

Revenues (2) :

Merchant Solutions $ 3,447,903 72.7 % $ 3,054,735 68.8 % $ 393,168 12.9 %

Issuer Solutions 1,161,349 24.5 % 1,096,965 24.7 % 64,384 5.9 %

Consumer Solutions 182,740 3.9 % 330,744 7.5 % (148,004) NM

Intersegment eliminations (47,076) (1.0) % (45,284) (1.0) % (1,792) 4.0 %

Consolidated revenues $ 4,744,916 100.0 % $ 4,437,160 100.0 % $ 307,756 6.9 %

Consolidated operating expenses (2) :

Cost of service $ 1,889,705 39.8 % $ 1,919,457 43.3 % $ (29,752) (1.6) %

Selling, general and administrative 2,056,641 43.3 % 1,686,328 38.0 % 370,313 22.0 %

Impairment of goodwill — — % 833,075 18.8 % (833,075) NM

Net loss on business dispositions 139,095 2.9 % 152,211 3.4 % (13,116) NM

Operating expenses $ 4,085,441 86.1 % $ 4,591,071 103.5 % $ (505,630) (11.0) %

Operating income (loss) (2) :

Merchant Solutions $ 1,110,757 23.4 % $ 979,889 22.1 % $ 130,868 13.4 %

Issuer Solutions 178,511 3.8 % 146,641 3.3 % 31,870 21.7 %

Consumer Solutions (3,908) (0.1) % 44,560 1.0 % (48,468) NM

Corporate (3)

(486,790) (10.3) % (339,715) (7.7) % (147,075) 43.3 %

Loss on business dispositions (244,833) (10.7) % — — % (244,833) NM

Operating income $ 56,735 2.5 % $ 375,947 17.4 % $ (319,212) (84.9) %

Impairment of goodwill — — % (833,075) (18.8) % 833,075 NM

Net loss on business dispositions (139,095) (2.9) % (152,211) (3.4) % 13,116 NM

Operating income (loss) $ 659,475 13.9 % $ (153,911) (3.5) % $ 813,386 NM

Operating margin (2) :

3 unchanged sentences

NM = Not meaningful

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

1 unchanged sentence

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

(3) 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.

Consolidated revenues for the three months ended March 31, 2023 increased by 6.3% to $2,292.4 million compared to $2,156.3 million for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes as a result of the increasing use of digital payment solutions, partially offset by the effects of unfavorable foreign currency exchange rates as the U.S.

dollar strengthened during the first quarter of 2023 as compared to the first quarter of 2022.

(3) Operating loss for Corporate included acquisition and integration expenses of $148.0 million and $109.5 million for the six months ended June 30, 2023 and 2022, respectively.

Consolidated revenues for the three and six months ended June 30, 2023 increased by 7.5% and 6.9%, respectively, to $2,452.5 million and $4,744.9 million, respectively, compared to $2,280.9 million and $4,437.2 million, respectively, for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes and revenues from the recently acquired EVO business.

Merchant Solutions Segment.

Revenues from our Merchant Solutions segment for the three months ended March 31, 2023 increased by 9.0% to $1,605.6 million compared to $1,473.0 million for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes as a result of the increasing use of digital payment solutions and growth in subscription and software revenue, partially offset by the effects of unfavorable foreign currency exchange rates of $17.8 million for the three months ended March 31, 2023.

Revenues from our Merchant Solutions segment for the three and six months ended June 30, 2023 increased by 16.5% and 12.9%, respectively, to $1,842.3 million and $3,447.9 million, respectively, compared to $1,581.7 million and $3,054.7 million, respectively, for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes and growth in subscription and software revenue, and revenues from the recently acquired EVO business.

Issuer Solutions Segment.

Revenues from our Issuer Solutions segment for the three months ended March 31, 2023 increased by 6.2% to $570.9 million compared to $537.3 million for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes, partially offset by the effects of unfavorable foreign currency exchange rates of $12.5 million for the three months ended March 31, 2023.

Revenues from our Issuer Solutions segment for the three and six months ended June 30, 2023 increased by 5.5% and 5.9%, respectively, to $590.4 million and $1,161.3 million, respectively, compared to $559.6 million and $1,097.0 million, respectively, for the prior year.

The increase in revenues was primarily due to an increase in transaction volumes.

Consumer Solutions Segment.

Revenues from our Consumer Solutions segment for the three months ended March 31, 2023 were $143.7 million compared to $169.1 million for the prior year.

Revenues for the three months ended March 31, 2023 were affected by reduced consumer spending and lower spending volumes as compared to the prior year.

Revenues from our Consumer Solutions segment for the three and six months ended June 30, 2023 were $39.0 million and $182.7 million, respectively, compared to $161.6 million and $330.7 million, respectively, for the prior year.

Revenues for the three and six months ended June 30, 2023 reflect the results through the disposal date.

Operating Expenses

Cost of Service.

Cost of service for the three months ended March 31, 2023 was $947.8 million compared to $957.2 million for the prior year.

Cost of service as a percentage of revenues decreased to 41.3% for the three months ended March 31, 2023 compared to 44.4% for the prior year.

Compared to the prior year, cost of service for the three months ended March 31, 2023 included higher variable costs associated with the increase in revenues, which was more than offset by the favorable effects of lower amortization of acquired intangibles, as the consumer and gaming business assets classified as held for sale are not subject to amortization, and prudent expense management.

Amortization of acquired intangibles was $301.3 million and $329.0 million for the three months ended March 31, 2023 and 2022, respectively.

Cost of service for the three and six months ended June 30, 2023 was $942.0 million and $1,889.7 million, respectively, compared to $962.3 million and $1,919.5 million, respectively, for the prior year.

Cost of service as a percentage of revenues decreased to 38.4% and 39.8%, respectively, for the three and six months ended June 30, 2023 compared to 42.2% and 43.3%, respectively, for the prior year.

Compared to the prior year, cost of service for the three and six months ended June 30, 2023 decreased primarily due to prudent expense management and inclusion of costs related to the divested businesses for only a portion of the current year, partially offset by effect of the recently acquired EVO business.

Cost of service included amortization of acquired intangibles of $344.4 million and $327.4 million for the three months ended June 30, 2023 and 2022, respectively, and $645.7 million and $656.4 million for the six months ended June 30, 2023 and 2022, respectively.

Amortization of acquired intangibles for the three months ended June 30, 2023 increased as a result of the recently acquired EVO business, and amortization of acquired intangibles for the six months ended June 30, 2023 included the favorable effects of lower amortization of acquired intangibles of the divested consumer and gaming business assets.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses for the three months ended March 31, 2023 increased by 26.7% to $1,043.1 million compared to $823.1 million for the prior year.

Selling, general and administrative expenses as a percentage of revenues was 45.5% for the three months ended March 31, 2023 compared to 38.2% for the prior year.

The increase in selling, general and administrative expenses was primarily due to increases in variable selling and other costs related to the increase in revenues, acquisition and integration expenses related primarily to the acquisition of EVO, higher compensation and benefits costs, including an increase in share-based compensation expense for retirement eligible executives and our CEO, whose departure was announced on May 1, 2023, and other costs related to the sale of the consumer business.

Selling, general and administrative expenses included acquisition and integration expenses of $101.4 million and $51.0 million for the three months ended March 31, 2023 and 2022.

Corporate expenses for the three months ended March 31, 2023 were $282.7 million compared to $160.3 million for the prior year.

The increase for the three months ended March 31, 2023 compared to the prior year was primarily due to the increase in acquisition and integration and share-based compensation expenses as described above.

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expenses included acquisition and integration expenses of $87.8 million for the three months ended March 31, 2023 compared to $48.2 million for the three months ended March 31, 2022.

Selling, general and administrative expenses for the three and six months ended June 30, 2023 increased by 17.4% and 22.0%, respectively, to $1,013.5 million and $2,056.6 million, respectively, compared to $863.2 million and $1,686.3 million, respectively, for the prior year.

Selling, general and administrative expenses as a percentage of revenues was 41.3% and 43.3% for the three and six months ended June 30, 2023, respectively, compared to 37.8% and 38.0%, respectively, for the prior year.

The increase in selling, general and administrative expenses was primarily due to increases in variable selling and other costs related to the increase in revenues, including due to the recently acquired EVO business, acquisition and integration expenses related primarily to the acquisition of EVO, higher compensation and benefits costs, including an increase in share-based compensation expense for retirement eligible executives and our previous CEO, whose departure was announced on May 1, 2023, and other costs related to the sale of the consumer business.

Selling, general and administrative expenses included acquisition and integration expenses of $67.5 million and $61.8 million for the three months ended June 30, 2023 and 2022, respectively, and $168.9 million and $112.9 million for the six months ended June 30, 2023 and 2022, respectively.

Corporate expenses for the three and six months ended June 30, 2023 were $204.1 million and $486.8 million, respectively, compared to $179.4 million and $339.7 million, respectively, for the prior year.

The increase for the three and six months ended June 30, 2023 compared to the prior year was primarily due to the increase in acquisition and integration and compensation expenses as described above.

Corporate expenses included acquisition and integration expenses of $60.2 million and $148.0 million for the three and six months ended June 30, 2023, respectively, compared to $61.4 million and $109.5 million for the three and six months ended June 30, 2022, respectively.

Operating Income and Operating Margin

Consolidated operating income for the three months ended March 31, 2023 was $56.7 million compared to $375.9 million for the prior year.

Operating margin for the three months ended March 31, 2023 was 2.5% compared to 17.4% for the prior year.

Consolidated operating income and operating margin for the three months ended March 31, 2023 compared to the prior year included the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and lower amortization of acquired intangibles as described above.

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, including 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.

Operating income for the three months ended March 31, 2023 also included the unfavorable effect of higher acquisition and integration and share-based compensation expenses as described above.

Consolidated operating income for the three and six months ended June 30, 2023 was $602.7 million and $659.5 million, respectively, compared to $529.9 million and $153.9 million, respectively, for the prior year.

Operating margin for the three and six months ended June 30, 2023 was 24.6% and 13.9%, respectively, compared to negative margins for the prior year.

Consolidated operating income and operating margin for the three and six months ended June 30, 2023 compared to the prior year included the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and a $104.1 million gain on sale of the gaming business, partially offset by higher acquisition and integration and compensation expenses as described above.

Consolidated operating income for the six months ended June 30, 2023 also included the effects of the net loss of $243.2 million on the consumer business disposition, to reduce the carrying amount of the disposal group to estimated fair value less costs to sell, including 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.

The gain (loss) on the sale of the gaming and consumer businesses is presented within gain (loss) on business dispositions in our consolidated statement of income.

Consolidated operating loss and negative operating margin for the three and six months ended June 30, 2022 included the effects of the $127.2 million loss on the sale of our Merchant Solutions business in Russia and the $833.1 million goodwill impairment charge related to our former Business and Consumer Solutions reporting unit.

We also recognized a charge of $25.0 million during the three months ended June 30, 2022 to reduce the disposal group to estimated fair value less costs to sell, which is presented within net loss on business dispositions in our consolidated statement of income.

Segment Operating Income and Operating Margin

In our Merchant Solutions segment, operating income and operating margin for the three months ended March 31, 2023 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.

These favorable effects were partially 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 months ended March 31, 2023 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, partially offset by the effects of unfavorable foreign currency exchange rates.

In our Consumer Solutions segment, operating income and operating margin for the three months ended March 31, 2023 were unfavorably affected by the decline in revenues and higher costs related to the sale of the consumer business.

In our Merchant Solutions segment, operating income for the three and six months ended June 30, 2023 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.

These favorable effects were partially offset by incremental expenses related to continued investment in new product, innovation and our technology environments.

In addition, the inclusion of the recently acquired operations of EVO had an unfavorable effect on the Merchant Solutions operating margin for the three and six months ended June 30, 2023 as compared to the prior year.

In our Issuer Solutions segment, operating income and operating margin for the three and six months ended June 30, 2023 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.

Other Income/Expense, Net

Interest and other expense for the three months ended March 31, 2023 increased to $122.9 million compared to $93.3 million for the prior year as a result of the increase in our average outstanding borrowings and higher average interest rates on outstanding borrowings.

Income Tax (Benefit) Expense

For the three months ended March 31, 2023, we reported a tax benefit of 57.0% of the reported loss before taxes compared to a tax expense of 18.4% of the reported income before taxes for the three months ended March 31, 2022.

The tax rate for the three months ended March 31, 2023 included a higher benefit from foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction as compared to the three months ended March 31, 2022.

In addition, during the three months ended March 31, 2023, we recognized a tax benefit on the loss on business disposition at the applicable tax rate, whereas the earnings other than this discrete item were tax effected at the lower estimated annual effective tax rate.

Interest and other income for the three and six months ended June 30, 2023 increased to $27.9 million and $39.1 million, respectively, compared to $3.0 million and $4.7 million, respectively, for the prior year, primarily due to the interest income associated with the new seller financing notes receivable.

Interest and other expense for the three and six months ended June 30, 2023 increased to $191.4 million and $314.4 million, respectively, compared to $99.2 million and $192.5 million, respectively, for the prior year as a result of the increase in our average outstanding borrowings, higher average interest rates on outstanding borrowings and a noncash charge of $18.2 million for the estimated future credit losses on the new seller financing notes receivable at the inception dates.

Income Tax Expense

For the three and six months ended June 30, 2023, we reported a tax expense of 39.2% and 36.7%, respectively, of the reported income before taxes.

During the three and six months ended June 30, 2023, we recognized a gain on the dispositions of our consumer and gaming businesses for income tax reporting purposes, while a net loss on the dispositions was recognized for financial reporting purposes.

These effects were partially offset by a higher benefit from foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction for the three and six months ended June 30, 2023 as compared to the three and six months ended June 30, 2022.

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.

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.

government enacted the Inflation Reduction Act into law, which, among other things, implemented 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.

During the three and six months ended June 30, 2023, we reflected excise taxes of $2.0 million and $4.3 million, respectively, within equity as part of the price of common stock repurchased during the period.

Net Income (Loss) Attributable to Global Payments

Net loss attributable to Global Payments was $11.0 million for the three months ended March 31, 2023 compared to net income of $244.7 million for the prior year, reflecting the changes in operating income noted above along with changes in equity in income of equity method investments.

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Net income attributable to Global Payments was $274.1 million and $263.1 million, respectively, for the three and six months ended June 30, 2023 compared to net loss of $673.0 million and $428.3 million, respectively, for the prior year, reflecting the changes in operating income noted above.

Diluted Earnings (Loss) per Share

Diluted loss per share was $0.04 for the three months ended March 31, 2023 compared to diluted earnings per share of $0.87 for the prior year.

Diluted loss per share for the three months ended March 31, 2023 reflects the changes in net income (loss).

Diluted earnings per share was $1.05 and $1.00, respectively, for the three and six months ended June 30, 2023 compared to diluted loss per share of $2.42 and $1.53, respectively, for the prior year.

Diluted earnings per share for the three and six months ended June 30, 2023 reflects the changes in net income.

Liquidity and Capital Resources

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We believe that our current and projected sources of liquidity will be sufficient to meet our projected liquidity requirements associated with our operations for the near and long term.

At March 31, 2023, we had cash and cash equivalents totaling $2,001.7 million.

At June 30, 2023, we had cash and cash equivalents totaling $1,919.6 million.

Of this amount, we considered $683.5 million to be available for general purposes, of which $62.4 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 $147.3 million as of March 31, 2023, representing 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.

We also had restricted cash of $193.3 million as of June 30, 2023, representing amounts deposited by customers for prepaid card transactions and funds held as a liquidity reserve.

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

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Operating activities provided net cash of $599.5 million and $630.0 million for the three months ended March 31, 2023 and 2022, respectively, which reflect net income adjusted for noncash items, including depreciation and amortization, charges associated with the loss on business dispositions and facility exit charges, and changes in operating assets and liabilities.

The decrease in cash flows from operating activities from the prior year was due to fluctuations in operating assets and liabilities that 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.

We used net cash in investing activities of $4,206.8 million and $160.8 million during the three months ended March 31, 2023 and 2022, respectively.

Operating activities provided net cash of $1,164.5 million and $1,198.1 million for the six months ended June 30, 2023 and 2022, respectively, which reflect net income adjusted for noncash items, including depreciation, amortization and the provision for credit losses, charges associated with the net loss on business dispositions and facility exit charges, and changes in operating assets and liabilities.

The decrease in cash flows from operating activities from the prior year was due to fluctuations in operating results and related assets and liabilities that 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.

We used net cash in investing activities of $4,001.5 million and $363.7 million during the six months ended June 30, 2023 and 2022, respectively.

Cash used for investing activities primarily represents cash used to fund acquisitions, net of cash and restricted cash acquired, and capital expenditures.

During the three months ended March 31, 2023 and 2022, we used cash of $4,046.8 million and $4.7 million, respectively, for acquisitions.

We made capital expenditures of $162.2 million and $156.1 million during the three months ended March 31, 2023 and 2022, respectively.

During the six months ended June 30, 2023 and 2022, we used cash of $4,101.4 million and $9.9 million, respectively, for acquisitions.

We made capital expenditures of $331.0 million and $324.0 million during the six months ended June 30, 2023 and 2022, 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 grow at a similar rate as our revenue growth for the year ending December 31, 2023.

Additionally, investing cash flows for the six months ended June 30, 2023 includes the net effect on cash from the sale of our consumer and gaming businesses and the issuance of a $50 million secured revolving credit facility available from the date of the sale to the purchasers of the consumer business.

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.

Financing activities provided net cash of $3,610.8 million during the three months ended March 31, 2023, and we used net cash in financing activities of $376.3 million during the three months ended March 31, 2022.

Proceeds from long-term debt were $4,708.1 million and $1,529.2 million for the three months ended March 31, 2023 and 2022, respectively.

Repayments of long-term debt were $1,556.0 million and $1,176.5 million for the three months ended March 31, 2023 and 2022, respectively.

Financing activities provided net cash of $2,701.3 million during the six months ended June 30, 2023, and we used net cash in financing activities of $742.7 million during the six months ended June 30, 2022.

Proceeds from long-term debt were $7,359.2 million and $2,954.2 million for the six months ended June 30, 2023 and 2022, respectively.

Repayments of long-term debt were $5,673.7 million and $2,276.5 million for the six months ended June 30, 2023 and 2022, 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, finance leases and other vendor financing arrangements.

During the three months ended March 31, 2023, we also had net borrowings of $1,048.6 million under our commercial paper program.

During the six months ended June 30, 2023, we also had net borrowings of $1,841.7 million under our commercial paper program.

See section "Long-Term Debt and Lines of Credit" below for further discussion of our recent debt transactions.

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, 2023, we had net repayments of settlement lines of credit of $281.4 million.

During the three months ended March 31, 2023, we had net borrowings from settlement lines of credit of $16.5 million.

During the six months ended June 30, 2023, we had net repayments of settlement lines of credit of $233.1 million.

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

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

During the three months ended March 31, 2023 and 2022, we used $206.6 million and $649.7 million, respectively, to repurchase shares of our common stock.

As of March 31, 2023, the remaining amount available under our share repurchase program was $1,295.7 million.

We paid dividends to our common shareholders in the amounts of $65.8 million and $70.2 million during the three months ended March 31, 2023 and 2022, respectively.

During the six months ended June 30, 2023 and 2022, we used $414.0 million and $1,250.0 million, respectively, to repurchase shares of our common stock.

As of June 30, 2023, the remaining amount available under our share repurchase program was $1,090.2 million.

We paid dividends to our common shareholders in the amounts of $130.6 million and $139.3 million during the six months ended June 30, 2023 and 2022, respectively.

We made distributions to noncontrolling interests in the amount of $17.3 million and $14.4 million during the six months ended June 30, 2023 and 2022, respectively.

Long-Term Debt and Lines of Credit

We have $12.7 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging from June 2023 to August 2052.

We have $10.8 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging from November 2024 to August 2052.

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

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

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

On 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, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at March 31, 2023.

Interest on the senior unsecured notes is payable annually in arrears on March 17 of each year, commencing March 17, 2024.

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The net proceeds from the offering were used for general corporate purposes.

During the three months ended June 30, 2023, we used borrowings under the revolving credit facility to fund the redemption in full of the 3.750% and 4.000% senior unsecured notes due June 1, 2023.

Convertible Notes

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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, 2023, there were borrowings of $2,323.0 million outstanding under the revolving credit facility, and the total available commitments under the revolving credit facility were $2.4 billion.

As of June 30,

2023, there were borrowings of $1,981.7 million outstanding under the revolving credit facility, and the total available commitments under the revolving credit facility were $1.9 billion.

Commercial Paper

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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 borrowings und er our commercial paper program of $1,048.6 million outstanding with a weighted average annual interest rate of 5.87%.

As of June 30, 2023 , we had borrowings und er our commercial paper program of $1,841.7 million outstanding with a weighted average annual interest rate of 5.96%.

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

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covenants based on net leverage and interest coverage ratios, and customary events of default.

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.

We were in compliance with all applicable covenants as of June 30, 2023.

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, 2023, a total of $82.6 million of cash on deposit was used to determine the available credit.

As of March 31, 2023, we had $482.3 million outstanding under these lines of credit with additional capacity to fund settlement of $1.8 billion.

During the three months ended March 31, 2023, the maximum and average outstanding balances under these lines of credit were $994.9 million and $460.6 million, respectively.

The weighted-average interest rate on these borrowings was 6.12% at March 31, 2023.

As of June 30, 2023, a total of $89.2 million of cash on deposit was used to determine the available credit.

As of June 30, 2023, we had $529.0 million outstanding under these lines of credit with additional capacity to fund settlement of $1.7 billion.

During the three months ended June 30, 2023, the maximum and average outstanding balances under these lines of credit were $1,128.7 million and $505.8 million, respectively.

The weighted-average interest rate on these borrowings was 6.33% at June 30, 2023.

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 Estimates

Redeemable noncontrolling interests - Redeemable noncontrolling interests in our subsidiaries in Poland, Chile, and Greece relate to the portion of equity in each of those subsidiaries not attributable, directly or indirectly, to us, which is redeemable upon the occurrence of an event that is not solely within our control.

We adjust the redeemable noncontrolling interests at each balance sheet date to reflect our estimates of the maximum redemption amounts with changes recognized as an adjustment to our additional paid-in capital or, in the absence of additional paid-in capital, to shareholders’ deficit.

Such estimates are based on projected operating performance of the subsidiaries and the key assumptions used in estimating the fair values include, but are not limited to, revenue growth rates and weighted-average cost of capital.

Redeemable noncontrolling interests - Redeemable noncontrolling interests in our subsidiaries in Poland, Greece, and Chile relate to the portion of equity in each of those subsidiaries not attributable, directly or indirectly, to us, which is redeemable upon the occurrence of an event that is not solely within our control.

The redeemable noncontrolling interest for each subsidiary is reflected at the higher of:

(i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of comprehensive income (loss), c apital contributions and distributions or (ii) the redemption price .

Estimates of redemption price are based on projected operating performance of each subsidiary, including key assumptions - revenue growth rates, current and expected market conditions and weighted-average cost of capital.

Refer to “Note 9—Redeemable Noncontrolling Interests” in the notes to the accompanying unaudited consolidated financial statements for further information.

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From time-to-time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standards setting bodies that may affect our current and/or future financial statements.

There were no new recently adopted accounting pronouncements or recently issued accounting pronouncements not yet adopted during the period.

There were no new recently adopted accounting pronouncements during the period or recently issued accounting pronouncements not yet adopted as of June 30, 2023.

Forward-Looking Statements

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For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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

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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, 2022 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