What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-08-01 · 124 added, 115 removed, 215 unchanged (53% of the section changed)

16 unchanged sentences

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.

We recognized a loss on business dispositions in our consolidated statement of income of $243.2 million during the nine months ended September 30, 2023 related to this sale.

• 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.

We recognized a gain of $104.1 million during the nine months ended September 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.

3 unchanged sentences

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.

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.

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 September 30, 2023 and results of operations for the three and nine months then ended include the following:

• Consolidated revenues for the three and nine months ended September 30, 2023 increased to $2,475.7 million and $7,220.6 million, respectively, compared to $2,285.4 million and $6,722.5 million, respectively, for the prior year.

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

• Merchant Solutions and Issuer Solutions segment operating income for the three and nine months ended September 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 and nine months ended September 30, 2023 included the favorable effects of the increase in revenues as compared to the prior year and prudent expense management, partially offset by an increase in acquisition and integration expenses and amortization of acquired intangibles, primarily related to the acquisition of EVO.

Consolidated operating income for the nine months ended September 30, 2023 also included the effects of the loss on the sale of the consumer business, which was partially offset by the gain on the sale of the gaming business as described above.

Risks Related to Macroeconomic Conditions

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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, 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.

In addition, failures of several financial institutions in the first quarter of 2023, 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.

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Results of Operations

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:

We operate in two reportable segments:

Merchant Solutions and Issuer Solutions.

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

1 unchanged sentence

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 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.

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

Three Months Ended

June 30, 2023 % of Revenues (1)

September 30, 2023 % of Revenues (1)

Three Months Ended

June 30, 2022 % of Revenues (1)

September 30, 2022 % of Revenues (1)

$ Change % Change

9 unchanged sentences

Selling, general and administrative 1,001,964 40.5 % 918,757 40.2 % 83,207 9.1 %

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

Loss on business dispositions — — % 48,933 2.1 % (48,933) NM

Operating expenses $ 1,917,495 77.5 % $ 1,898,939 83.1 % $ 18,556 1.0 %

5 unchanged sentences

(193,545) (7.8) % (236,042) (10.3) % 42,497 (18.0) %

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

Loss on business dispositions — — % (48,933) (2.1) % 48,933 NM

Operating income $ 558,196 22.5 % $ 386,432 16.9 % $ 171,764 44.4 %

Operating margin (2) :

1 unchanged sentence

Issuer Solutions 18.7 % 17.2 % 1.5 %

Consumer Solutions 4.8 % 13.6 % (8.8) %

Consumer Solutions NM 15.7 % NM

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.

(2) Revenues, consolidated operating expenses, operating income 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)

(3) Operating loss for Corporate included acquisition and integration expenses of $74.4 million and $75.3 million for the three months ended September 30, 2023 and 2022, respectively.

During the three months ended September 30, 2023 and 2022, operating loss for Corporate also included $3.7 million and $31.7 million, respectively, of other charges related to facilities exit activities.

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

Nine Months Ended

September 30, 2023 % of Revenues (1)

Nine Months Ended

September 30, 2022 % of Revenues (1)

$ Change % Change

3 unchanged sentences

Issuer Solutions 1,769,196 24.5 % 1,663,008 24.7 % 106,188 6.4 %

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

Consumer Solutions 182,740 2.5 % 478,082 7.1 % (295,342) (61.8) %

Intersegment eliminations (63,238) (0.9) % (69,620) (1.0) % 6,382 (9.2) %

4 unchanged sentences

Impairment of goodwill — — % 833,075 12.4 % (833,075) NM

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

Net loss on business dispositions 139,095 1.9 % 201,144 3.0 % (62,049) (30.8) %

Operating expenses $ 6,002,937 83.1 % $ 6,490,010 96.5 % $ (487,073) (7.5) %

6 unchanged sentences

Impairment of goodwill — — % (833,075) (12.4) % 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

Net loss on business dispositions (139,095) (1.9) % (201,144) (3.0) % 62,049 (30.8) %

Operating income $ 1,217,670 16.9 % $ 232,521 3.5 % $ 985,149 423.7 %

Operating margin (2) :

4 unchanged sentences

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

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

(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.

(3) Operating loss for Corporate included acquisition and integration expenses of $222.4 million and $184.8 million for the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2023 and 2022, operating loss for Corporate also included $15.0 million and $40.0 million, respectively, of other charges related to facilities exit activities.

Consolidated revenues for the three and nine months ended September 30, 2023 increased by 8.3% and 7.4%, respectively, to $2,475.7 million and $7,220.6 million, respectively, compared to $2,285.4 million and $6,722.5 million, respectively, for the prior year.

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

Merchant Solutions Segment.

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.

Revenues from our Merchant Solutions segment for the three and nine months ended September 30, 2023 increased by 18.0% and 14.6%, respectively, to $1,884.0 million and $5,331.9 million, respectively, compared to $1,596.3 million and $4,651.1 million, respectively, for the prior year.

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

Issuer Solutions Segment.

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.

Revenues from our Issuer Solutions segment for the three and nine months ended September 30, 2023 increased by 7.4% and 6.4%, respectively, to $607.8 million and $1,769.2 million, respectively, compared to $566.0 million and $1,663.0 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 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 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.

Cost of service for the three and nine months ended September 30, 2023 was $915.5 million and $2,805.2 million, respectively, compared to $931.2 million and $2,850.7 million, respectively, for the prior year.

Cost of service as a percentage of revenues was 37.0% and 38.9%, respectively, for the three and nine months ended September 30, 2023 compared to 40.7% and 42.4%, respectively, for the prior year.

Compared to the prior year, cost of service for the three and nine months ended September 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.

These favorable effects were partially offset by the inclusion of costs for the recently acquired EVO business, including the related amortization of acquired intangibles.

Cost of service included amortization of acquired intangibles of $340.4 million and $306.0 million for the three months ended September 30, 2023 and 2022, respectively, and $986.0 million and $962.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Selling, General and Administrative Expenses .

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.

Selling, general and administrative expenses for the three and nine months ended September 30, 2023 increased by 9.1% and 17.4%, respectively, to $1,002.0 million and $3,058.6 million, respectively, compared to $918.8 million and $2,605.1 million, respectively, for the prior year.

Selling, general and administrative expenses as a percentage of revenues was 40.5% and 42.4% for the three and nine months ended September 30, 2023, respectively, compared to 40.2% and 38.8%, respectively, for the prior year.

The increase in selling, general and administrative expenses for the three and nine months ended September 30, 2023 compared to the prior year was primarily due to increases in variable selling and other costs related to the increase in revenues, as well as the effects of higher acquisition and integration expenses, related primarily to the acquisition of EVO, and higher compensation and benefits costs, including an increase for the nine month period in share-based compensation expense for retirement eligible executives and our previous CEO, whose departure was announced on May 1, 2023.

This increase was partially offset by lower facilities exit charges in the current year and prudent expense management.

Selling, general and administrative expenses included acquisition and integration expenses of $75.1 million and $73.3 million for the three months ended September 30, 2023 and 2022, respectively, and $244.0 million and $186.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Share-based compensation expense was $36.6 million and $37.1 million for the three months ended September 30, 2023 and 2022, respectively, and $173.3 million and $122.5 million for the nine months ended September 30, 2023 and 2022, respectively.

In addition, actions taken to exit certain leased facilities resulted in charges of $31.7 million and $40.0 million during the three and nine months ended September 30, 2022, respectively, primarily to reduce the carrying amount of the affected asset groups to estimated fair value, while facilities exit actions resulted in charges during the three and nine months ended September 30, 2023 of $3.7 million and $15.0 million, respectively.

Corporate expenses for the three and nine months ended September 30, 2023 were $193.5 million and $680.3 million, respectively, compared to $236.0 million and $575.8 million, respectively, for the prior year.

The decrease for the three months ended September 30, 2023 compared to the prior year was primarily due to lower charges related to facilities exit activities in the current year as described above and prudent expense management.

The increase for the nine months ended September 30, 2023 compared to the prior year was primarily due to the increase in acquisition and integration and compensation expenses as described above, partially offset by lower charges related to facilities exit activities in the current year.

Corporate expenses included acquisition and integration expenses of $74.4 million and $222.4 million for the three and nine months ended September 30, 2023, respectively, compared to $75.3 million and $184.8 million for the three and nine months ended September 30, 2022, respectively.

Operating Income and Operating Margin

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.

Consolidated operating income for the three and nine months ended September 30, 2023 was $558.2 million and $1,217.7 million, respectively, compared to $386.4 million and $232.5 million, respectively, for the prior year.

Operating margin for the three and nine months ended September 30, 2023 was 22.5% and 16.9%, respectively, compared to 16.9% and 3.5% for the three and nine months ended September 30, 2022, respectively.

The increase in consolidated operating income and operating margin for the three and nine months ended September 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 prudent expense management.

These effects were partially offset by higher acquisition and integration expenses, amortization of acquired intangibles and compensation expenses as described above.

In addition, the increase in consolidated operating income and operating margin for the three months ended September 30, 2023 included the favorable effect of lower corporate expenses as described above.

Consolidated operating income for the nine months ended September 30, 2023 also included the effects of the $104.1 million gain on sale of the gaming business and the net loss of $243.2 million on the consumer business disposition to reduce the carrying amount of the consumer 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.

Consolidated operating income and operating margin for the nine months ended September 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 charges within loss on the business dispositions in our consolidated statements of income of $48.9 million and $73.9 million during the three and nine months ended September 30, 2022, respectively, to reduce the disposal group to estimated fair value less costs to sell.

Operating income for the three and nine months ended September 30, 2022 also included the unfavorable effect of a charge in the third quarter of 2022 related to facilities exit activities as described above.

Segment Operating Income and Operating Margin

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.

In our Merchant Solutions segment, operating income for the three and nine months ended September 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.

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

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

In our Issuer Solutions segment, operating income and operating margin for the three and nine months ended September 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 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.

Interest and other income for the three and nine months ended September 30, 2023 increased to $35.7 million and $74.8 million, respectively, compared to $20.4 million and $25.1 million, respectively, for the prior year, primarily due to the interest income associated with the new seller financing notes receivable.

We recognized interest income of $21.4 million and $37.1 million during the three and nine months ended September 30, 2023, respectively.

Other income for the three and nine months ended September 30, 2022 included a gain of $13.2 million recognized in connection with the release and conversion of a portion of our Visa convertible preferred shares.

See "Note 13—Supplemental Balance Sheet Information" in the notes to the accompanying consolidated financial statements for further discussion of this transaction.

Interest and other expense for the three and nine months ended September 30, 2023 increased to $176.1 million and $490.5 million, respectively, compared to $135.2 million and $327.7 million, respectively, for the prior year as a result of the increase in our average outstanding borrowings and higher average interest rates on outstanding borrowings.

In addition, during the nine months ended September 30, 2023, we incurred a noncash charge of $18.2 million for the estimated future credit losses on the new seller financing notes receivable.

Interest expense for the three and nine months ended September 30, 2022 included fees and charges incurred in connection with financing activities that occurred during the third quarter of 2022, including $17.3 million related to commitment fees associated with bridge financing.

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.

For the three months ended September 30, 2023, our effective income tax rate was 14.1%.

The effective rate included the favorable effects from foreign-derived intangible income deductions, tax credits and foreign interest income not subject to tax.

For the nine months ended September 30, 2023, our effective income tax rate was 24.9%.

The effective tax rate reflects recognition of 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.

This was partially offset by the favorable effect on the rate of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction.

For the three months ended September 30, 2022, our effective income tax rate was 5.2%.

The low effective rate was primarily due to the favorable effects of foreign interest income not subject to tax, adjustments to unrecognized income tax benefits related to certain U.S.

federal income tax positions and remeasurement of state deferred taxes to reflect enacted tax law changes.

For the nine months ended September 30, 2022, we incurred income tax expense in spite of reporting a loss before income taxes primarily due to the unfavorable effects of the goodwill impairment charge and the loss on the sale of our Merchant Solutions business in Russia, for which no tax benefit was recognized.

On August 16, 2022, the U.S.

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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 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.

During the nine months ended September 30, 2023, we reflected excise taxes of $4.0 million within equity as part of the cost of common stock repurchased, net of share issuances, during the period.

Net Income (Loss) Attributable to Global Payments

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.

Net income attributable to Global Payments was $361.8 million and $624.9 million, respectively, for the three and nine months ended September 30, 2023 compared to net income (loss) of $290.5 million and $(137.8) million, respectively, for the prior year, reflecting the changes in operating income noted above along with changes in equity in income of equity method investments.

Equity in income of equity method investments for the three and nine months ended September 30, 2022 included a $17.9 million gain on the sale of an equity method investment.

Diluted Earnings (Loss) per Share

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.

Diluted earnings per share was $1.39 and $2.39, respectively, for the three and nine months ended September 30, 2023 compared to diluted earnings (loss) per share of $1.05 and $(0.49), respectively, for the prior year.

Diluted earnings per share for the three and nine months ended September 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 June 30, 2023, we had cash and cash equivalents totaling $1,919.6 million.

At September 30, 2023, we had cash and cash equivalents totaling $1,941.8 million.

Of this amount, we considered $692.7 million to be available for general purposes, of which $61.6 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States.

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Merchant Reserves serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant's agreement.

While this cash is not restricted in its use, we believe that designating this cash as a Merchant Reserve strengthens our fiduciary standing with our member sponsors.

While this cash is not restricted in its use, we believe that designating this cash as a Merchant Reserve strengthens our fiduciary

standing with our member sponsors.

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

We also had restricted cash of $166.9 million as of September 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.

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.

Operating activities provided net cash of $1,591.3 million and $1,534.5 million for the nine months ended September 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 increase 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 liability balances.

We used net cash in investing activities of $4,119.7 million and $486.9 million during the nine months ended September 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 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.

During the nine months ended September 30, 2023 and 2022, we used cash of $4,099.8 million and $25.0 million, respectively, for acquisitions.

We made capital expenditures of $500.8 million and $463.4 million during the nine months ended September 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.

These investments also include new product development and innovation to further enhance and differentiate our suite of technology and cloud-based solutions available to customers.

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.

We expect to continue to make significant capital investments in the business, and we anticipate capital expenditures to approximate $630 million during the year ending December 31, 2023.

Additionally, investing cash flows for the nine months ended September 30, 2023 includes the net effect on cash from the sale of our consumer and gaming businesses and the issuance and subsequent repayment 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 nine months ended September 30, 2022 includes the net effect on cash from the sale of our Merchant Solutions business in Russia and cash received from the sale of investments in Visa common shares of $13.2 million and equity method investments of $17.9 million.

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 $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.

Financing activities provided net cash of $2,458.4 million during the nine months ended September 30, 2023, and we used net cash in financing activities of $804.6 million during the nine months ended September 30, 2022.

Proceeds from long-term debt were $8,861.1 million and $9,124.4 million for the nine months ended September 30, 2023 and 2022, respectively.

Repayments of long-term debt were $7,628.9 million and $7,193.7 million for the nine months ended September 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 six months ended June 30, 2023, we also had net borrowings of $1,841.7 million under our commercial paper program.

During the nine months ended September 30, 2023, we also had net borrowings of $1,900.0 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 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.

During the nine months ended September 30, 2023 and 2022, we had net repayments of settlement lines of credit of $33.3 million and $2.8 million, respectively.

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

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.

During the nine months ended September 30, 2023 and 2022, we used $413.7 million and $2,139.7 million, respectively, to repurchase shares of our common stock.

As of September 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 $195.6 million and $208.1 million during the nine months ended September 30, 2023 and 2022, respectively.

We made distributions to noncontrolling interests in the amount of $24.3 million and $17.7 million during the nine months ended September 30, 2023 and 2022, respectively.

Long-Term Debt and Lines of Credit

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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 June 30, 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.

During the nine months ended September 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 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.

As of September 30, 2023, there were borrowings of $1,545.0 million outstanding under the revolving credit facility, and the total available commitments under the revolving credit facility were $2.3 billion.

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.

The 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.

The 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 such, we could draw on the revolving credit facility to repay commercial paper notes that cannot be rolled over or refinanced with similar debt.

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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 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%.

As of September 30, 2023 , we had borrowings und er our commercial paper program of $1,900.0 million outstanding with a weighted average annual interest rate of 6.07%.

Compliance with Covenants

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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 June 30, 2023.

We were in compliance with all applicable covenants as of September 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 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.

As of September 30, 2023, a total of $86.3 million of cash on deposit was used to determine the available credit.

As of September 30, 2023, we had $707.8 million outstanding under these lines of credit with additional capacity to fund settlement of $1.7 billion.

During the three months ended September 30, 2023, the maximum and average outstanding balances under these lines of credit were $1,035.1 million and $537.8 million, respectively.

The weighted-average interest rate on these borrowings was 5.97% at September 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.

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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 during the period or recently issued accounting pronouncements not yet adopted as of June 30, 2023.

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

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