GLOBAL PAYMENTS INC 10-Q

ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements. Executive Overview We are a leading payments technology company delivering innovative software and services to our customers globally. Our technologies, services and team member expertise allow us to provide a broad range of solutions that enable our customers to operate their businesses more efficiently across a variety of channels around the world. We have grown organically, as well as through acquisitions, and continue to invest in new technology solutions, infrastructure to support our growing business and the ongoing consolidation and enhancement of our operating platforms. These investments include new product development and innovation to further enhance and differentiate our suite of technology and solutions available to customers, along with migration of certain underlying technology platforms to cloud environments to enhance performance, improve speed to market and drive cost efficiencies. We also continue to execute on integration and other business transformation activities, such as combining business operations, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures and realizing scale efficiencies. Highlights related to our financial condition at September 30, 2024, 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, 2024 increased to $2,601.6 million and $7,590.5 million, respectively, compared to $2,475.7 million and $7,220.6 million, respectively, for the prior year. The increase in consolidated revenues was primarily due to growth in transaction volumes. For the nine months ended September 30, 2024, the effect on revenues from the EVO business acquired in March 2023 was offset by the effect on revenues from the divestitures of our gaming and consumer businesses in April 2023. • Merchant Solutions segment operating income for the three and nine months ended September 30, 2024 and Issuer Solutions segment operating income for the nine months ended September 30, 2024 increased compared to the prior year primarily due to the favorable effect of increases in revenues, as certain fixed costs do not vary with revenues. Merchant Solutions operating income for the nine months ended September 30, 2024 also reflected an increase related to the acquired EVO business, as the same period in 2023 only reflected the acquisition for a portion of the period. Issuer Solutions segment operating income for the three months ended September 30, 2024 decreased compared to the prior year due to slightly higher costs. • Consolidated operating income for the three and nine months ended September 30, 2024 included the favorable effects of the increase in revenues as compared to the prior year and lower acquisition and integration expenses. These favorable effects were offset by expenses related to business transformation activities, a technology asset charge and an increase in amortization of acquired intangibles, primarily related to the acquisition of EVO. Consolidated operating income for the nine months ended September 30, 2023 included the effects of the gain on the sale of our gaming business and the loss on the sale of our consumer business. • On February 23, 2024, we issued $2.0 billion in aggregate principal amount of 1.500% convertible unsecured senior notes due March 2031 through a private placement. In connection with the issuance of the notes, we entered into privately negotiated capped call transactions to hedge the potential dilutive effect upon conversion of the notes, or offset our cash obligation if the cash settlement option were to be elected, for amounts in excess of the principal amount of converted notes up to a cap price. 31 Table of Contents Strategy and Business Transformation Early this year, we launched a holistic review of our business to examine our strategy, operational fitness and ability to deliver sustainable performance. We refreshed our strategy to ensure we are focusing our resources, efforts and investments on the areas of the business that will drive the best opportunities for growth. We then evaluated our organizational structure and operating model and capacity to execute against this strategy. This gave rise to a broad operational transformation agenda to ensure we are poised for success. We are streamlining and simplifying our strategy, organization and operating environment through our transformation program to deliver a global, unified operating company. We are aligning the Global Payments brand identity across our assets and solidifying go-to-market activities under a common umbrella. In our Merchant Solutions segment, we are harmonizing products and capabilities and prioritizing small and medium-sized businesses to deliver our full suite of differentiated software and commerce enablement solutions. In our Issuer Solutions segment, we are capitalizing on growth opportunities through our cloud modernization and cross-selling initiatives, while also leveraging the strategic value of this business to extend our capabilities across the payments value chain. We have consolidated our technology organizations and teams under common leadership to enhance speed and quality of product development with a customer-centric, product-led mindset. We have also centralized our operations functions to enhance our servicing model and focus on improving the customer journey, leveraging best-in-class technology and providing differentiated service experiences for our clients. These strategic, organizational and operational transformation activities have just begun and are expected to continue over the next few years. As we focus on executing and delivering transformation initiatives, we anticipate incremental expenses related to the transformation and potential asset impairment charges through early 2027. We are also undertaking a strategic review of our business portfolio to evaluate potential assets for divestiture to further streamline our business and create value for shareholders. We expect our transformation initiatives to generate more than $500 million of annual run-rate operating income benefit by the first half of 2027. Risks Related to Macroeconomic Effects and Other Global Conditions We are exposed to general economic conditions, including currency fluctuations, inflation, rising interest rates and other conditions that affect the overall level of consumer, business and government spending, which could negatively affect our financial performance. Certain of our operations are conducted in foreign currencies. Consequently, a portion of our revenues and expenses has been and may continue to be affected by fluctuations in foreign currency exchange rates. A 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. We have sought to reduce our interest rate risk through the issuance of fixed rate debt in place of variable rate debt and through interest rate swap hedging arrangements that convert a significant portion of the eligible variable rate borrowings under our revolving credit facility to a fixed rate. However, inflationary pressure or interest rate fluctuations could adversely affect our business and financial performance as a result of higher costs and/or lower consumer spending. In addition, continued inflation or a rise in interest rates could have an adverse effect on our future financial results and the recoverability of assets. 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. 32 Table of Contents 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. A disruption in financial markets could impair our banking partners, which could affect our ability to access our cash or cash equivalents, our ability to provide settlement services or our customers' ability to access their existing cash to fulfill their payment obligations to us. The occurrence of these events could negatively affect our business, financial condition and results of operations. We also continue to evaluate the potential effects on our business from heightened geopolitical and economic instability or increased difficulty of conducting business in a country or region due to actual or potential political or military conflict or action, such as those arising from recent global events, which have increased the level of economic and political uncertainty in various regions of the world. Although we have not experienced significant exposure or adverse effects on our business and financial results to date, the extent to which these events could affect the global economy and our operations is difficult to predict at this time. However, a significant escalation, expansion of the scope or continuation of the related economic disruptions could have an adverse effect on our business and financial results. Our financial condition and results of operations may be adversely affected by a downturn in macroeconomic conditions. When adverse macroeconomic conditions arise, we evaluate where we may be able to implement cost-saving measures, including those related to headcount and discretionary expenses. 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, 2023 and subsequent filings we make with the SEC, including this Form 10-Q. 33 Table of Contents Results of Operations We operate in two reportable segments: Merchant Solutions and Issuer Solutions. 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 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, 2023, incorporated herein by reference, and “Note 15—Segment Information” in the notes to the accompanying unaudited consolidated financial statements included in Part I, Item 1 — Financial Statements. Key Drivers of our Results of Operations Our revenues for both of our segments are dependent upon the volume of payment transactions we process, cardholder accounts on file and other factors (transaction volume). As the majority of our services are priced as a percentage of transaction value or specified fee per unit or transaction, many under multi-year customer arrangements, our revenues generally grow period-over-period in line with the rate of increase in transaction volume. Our operating expenses consist primarily of the cost of the technology to provide services to our customers and our people costs to support the operations. Many of those costs do not vary directly with the level of payment transactions we process for our customers, generating operating leverage. As revenues increase, operating income and operating margin (operating income as a percentage of revenues) generally increase. We also grow our business through strategic acquisitions of similar businesses. Our revenues increase from the transaction volume from the customers of the acquired businesses. As we integrate the businesses, we also are able to improve operating income and operating margin by generating synergies to lower the cost base of those businesses. 34 Table of Contents The following table sets forth key selected financial data for the three months ended September 30, 2024 and 2023, this data as a percentage of total revenues and the changes between periods in dollars and as a percentage of the prior-period amount. The income statement data for the three months ended September 30, 2024 and 2023 is derived from the accompanying unaudited consolidated financial statements. Three Months Ended September 30, 2024 % of Revenues (1) Three Months Ended September 30, 2023 % of Revenues (1) $ Change % Change (dollar amounts in thousands) Revenues (2) : Merchant Solutions $ 1,997,660 76.8 % $ 1,884,006 76.1 % $ 113,654 6.0 % Issuer Solutions 621,130 23.9 % 607,848 24.6 % 13,282 2.2 % Intersegment eliminations (17,238) (0.7) % (16,163) (0.7) % (1,075) 6.7 % Consolidated revenues $ 2,601,552 100.0 % $ 2,475,691 100.0 % $ 125,861 5.1 % Consolidated operating expenses (2) : Cost of service $ 946,945 36.4 % $ 915,531 37.0 % $ 31,414 3.4 % Selling, general and administrative 1,179,026 45.3 % 1,001,964 40.5 % 177,062 17.7 % Operating expenses $ 2,125,971 81.7 % $ 1,917,495 77.5 % $ 208,476 10.9 % Operating income (loss) (2) : Merchant Solutions $ 707,546 27.2 % $ 637,864 25.8 % $ 69,682 10.9 % Issuer Solutions 106,045 4.1 % 113,877 4.6 % (7,832) (6.9) % Corporate (338,010) (13.0) % (193,545) (7.8) % (144,465) 74.6 % Operating income $ 475,581 18.3 % $ 558,196 22.5 % $ (82,615) (14.8) % Operating margin (2) : Merchant Solutions 35.4 % 33.9 % 1.5 % Issuer Solutions 17.1 % 18.7 % (1.6) % NM = Not meaningful (1) Percentage amounts may not sum to the total due to rounding. (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. Operating income included acquisition and integration expenses of $45.8 million and $75.1 million for the three months ended September 30, 2024 and 2023, respectively, which were primarily included within Corporate selling, general and administrative expenses. During the three months ended September 30, 2024, Corporate expenses also reflected employee termination benefits of $56.4 million, costs of $59.2 million associated with our business transformation initiative and charges of $55.8 million for technology assets that will no longer be utilized under a revised technology architecture development strategy. 35 Table of Contents The following table sets forth key selected financial data for the nine months ended September 30, 2024 and 2023, this data as a percentage of total revenues and the changes between periods in dollars and as a percentage of the prior-period amount. The income statement data for the nine months ended September 30, 2024 and 2023 is derived from the accompanying unaudited consolidated financial statements. Nine Months Ended September 30, 2024 % of Revenues (1) Nine Months Ended September 30, 2023 % of Revenues (1) $ Change % Change (dollar amounts in thousands) Revenues (2) : Merchant Solutions $ 5,802,780 76.4 % $ 5,331,909 73.8 % $ 470,871 8.8 % Issuer Solutions 1,837,373 24.2 % 1,769,196 24.5 % 68,177 3.9 % Consumer Solutions — — % 182,740 2.5 % (182,740) NM Intersegment eliminations (49,645) (0.7) % (63,238) (0.9) % 13,593 (21.5) % Consolidated revenues $ 7,590,508 99.9 % $ 7,220,607 100.0 % $ 369,901 5.1 % Consolidated operating expenses (2) : Cost of service $ 2,807,819 37.0 % $ 2,805,237 38.9 % $ 2,582 0.1 % Selling, general and administrative 3,282,232 43.2 % 3,058,605 42.4 % 223,627 7.3 % Net loss on business dispositions — — % 139,095 1.9 % (139,095) NM Operating expenses $ 6,090,051 80.2 % $ 6,002,937 83.1 % $ 87,114 1.5 % Operating income (loss) (2) : Merchant Solutions $ 1,960,509 25.8 % $ 1,748,622 24.2 % $ 211,887 12.1 % Issuer Solutions 322,517 4.2 % 292,388 4.0 % 30,129 10.3 % Consumer Solutions — — % (3,908) (0.1) % 3,908 NM Corporate (782,569) (10.3) % (680,337) (9.4) % (102,232) 15.0 % Net loss on business dispositions — — % (139,095) (1.9) % 139,095 NM Operating income $ 1,500,457 19.8 % $ 1,217,670 16.9 % $ 282,787 23.2 % Operating margin (2) : Merchant Solutions 33.8 % 32.8 % 1.0 % Issuer Solutions 17.6 % 16.5 % 1.1 % Consumer Solutions — % (2.1) % NM NM = Not meaningful (1) Percentage amounts may not sum to the total due to rounding. (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. Operating income included acquisition and integration expenses of $180.4 million and $244.4 million for the nine months ended September 30, 2024 and 2023, respectively, which were primarily included within Corporate selling, general and administrative expenses. 36 Table of Contents During the nine months ended September 30, 2024, Corporate expenses also reflected employee termination benefits of $94.1 million, costs of $59.2 million associated with our the business transformation initiative and charges of $55.8 million for technology assets that will no longer be utilized under a revised technology architecture development strategy. Revenues Consolidated revenues for each of the three and nine months ended September 30, 2024 increased by 5.1% to $2,601.6 million and $7,590.5 million, respectively, compared to $2,475.7 million and $7,220.6 million, respectively, for the prior year. The nine months ended September 30, 2023 included revenues of $182.7 million related to the consumer business divested in April 2023. Merchant Solutions Segment. Revenues from our Merchant Solutions segment for the three months ended September 30, 2024 increased by $113.7 million, or 6.0%, to $1,997.7 million, compared to $1,884.0 million for the prior year. Revenues from our Merchant Solutions segment for the nine months ended September 30, 2024 increased by $470.9 million, or 8.8%, to $5,802.8 million, compared to $5,331.9 million for the prior year. For the three months ended September 30, 2024, our technology-enabled distribution channel contributed $86.5 million to segment revenue growth. For the nine months ended September 30, 2024, our technology-enabled distribution channel contributed $295.5 million to segment revenue growth. The increase in revenues in our technology-enabled distribution channel was primarily driven by growth in transaction volume within integrated and embedded payments from new customers and incremental cross-selling of services. For the three months ended September 30, 2024, our relationship-led distribution channel contributed $27.2 million to segment revenue growth. For the nine months ended September 30, 2024, our relationship-led channel contributed $175.4 million to segment revenue growth. The increase in revenues in our relationship-led distribution channel was primarily driven by an increase in transaction volume, including from recently acquired businesses. For the nine months ended September 30, 2024, the net impact of our acquisition and divestiture activities contributed approximately 3.1% growth to Merchant Solutions, with the EVO business acquired in March 2023 contributing approximately 3.6% growth. Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the three and nine months ended September 30, 2024 increased by 2.2% and 3.9%, respectively, to $621.1 million and $1,837.4 million, respectively, compared to $607.8 million and $1,769.2 million, respectively, for the prior year. For the three and nine months ended September 30, 2024, the increase in revenues was primarily due to an increase in transaction volume. Operating Expenses Cost of Service. Cost of service for the three and nine months ended September 30, 2024 was $946.9 million and $2,807.8 million, respectively, compared to $915.5 million and $2,805.2 million, respectively, for the prior year. Cost of service as a percentage of revenues decreased to 36.4% and 37.0%, respectively, for the three and nine months ended September 30, 2024, compared to 37.0% and 38.9%, respectively, for the prior year. For the three and nine months ended September 30, 2024, cost of service as a percentage of revenues decreased primarily due to improved operating leverage in the business, partially offset by increases of $10.0 million and $43.7 million, respectively, in amortization and depreciation expenses, primarily related to amortization of acquired intangibles for recent acquisitions. For the nine months ended September 30, 2024, cost of service as a percentage of revenues also decreased as a result of the divestiture of our consumer business, which had a higher cost of service as a percentage of revenues relative to our Merchant Solutions and Issuer Solutions segments. The effect on cost of service as a percentage of revenues of the acquired EVO business was insignificant. 37 Table of Contents Selling, General and Administrative Expenses . Selling, general and administrative expenses for the three and nine months ended September 30, 2024 were $1,179.0 million and $3,282.2 million, respectively, compared to $1,002.0 million and $3,058.6 million, respectively, for the prior year. Selling, general and administrative expenses as a percentage of revenues was 45.3% and 43.2%, respectively, for the three and nine months ended September 30, 2024, compared to 40.5% and 42.4%, respectively, for the prior year. For the three and nine months ended September 30, 2024, selling, general and administrative expenses as a percentage of revenues increased primarily due to higher corporate expenses. Corporate expenses for the three and nine months ended September 30, 2024 include employee termination benefits of $56.4 million and $94.1 million, respectively, including $15.5 million and $18.2 million, respectively, of share-based compensation expense. Corporate expenses for the three and nine months ended September 30, 2024 also include costs of $59.2 million associated with our business transformation initiatives, primarily for resources to support the initiative, and charges of $55.8 million for technology assets that will no longer be utilized under a revised cloud development strategy. This increase in selling, general and administrative expenses as a percentage of revenues was partially offset by a reduction in acquisition and integration expenses of $29.3 million and $64.0 million for the three and nine months ended September 30, 2024, respectively. For the nine months ended September 30, 2024, our acquisition and divestiture activities had less than 1% effect on selling, general and administrative expenses as a percentage of revenues, both individually and in aggregate. Operating Income and Operating Margin Consolidated operating income for the three and nine months ended September 30, 2024 was $475.6 million and $1,500.5 million, respectively, compared to $558.2 million and $1,217.7 million, respectively, for the prior year. Operating margin for the three and nine months ended September 30, 2024 were 18.3% and 19.8%, respectively, compared to 22.5% and 16.9%, respectively, for the prior year. For the three months ended September 30, 2024: • Consolidated operating income decreased $82.6 million and operating margin decreased 4.2% primarily due to the higher costs incurred in connection with business transformation activities and the technology asset charge as described above; • Merchant Solutions segment operating income increased $69.7 million due to higher revenues, and operating margin increased 1.5% due to improved operating leverage in the business; and • Issuer Solutions segment operating income decreased $7.8 million and operating margin decreased 1.6% due to higher costs, including systems costs to support development activities and compensation costs. For the nine months ended September 30, 2024: • Consolidated operating income and operating margin reflected the higher costs incurred in connection with business transformation activities and the technology asset charge as described above; • Consolidated operating income and operating margin for the nine months ended September 30, 2023 included the effects of the $104.1 million gain on the sale of our gaming business and the $243.2 million net loss on the sale of our consumer business; • Merchant Solutions segment operating income increased $211.9 million due to higher revenues, and operating margin increased 1.0% due to an improved operating leverage in the business; and • Issuer Solutions segment operating income increased $30.1 million due to higher revenues and operating margin increased 1.1% due to improved operating leverage. Other Income/Expense, Net Interest and other income for the three and nine months ended September 30, 2024 increased to $55.3 million and $126.6 million, respectively, compared to $35.7 million and $74.8 million, respectively, for the prior year. The three and nine months ended September 30, 2024 included a gain of $18.8 million recognized in connection with the release and conversion of a 38 Table of Contents 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. In addition, the nine months ended September 30, 2024 included an increase of $29.3 million in interest income on the seller financing notes that were issued in connection with the sale of our consumer and gaming businesses in the second quarter of 2023. Interest and other expense for the three and nine months ended September 30, 2024 was $155.9 million and $477.2 million, respectively, compared to $176.1 million and $490.5 million, respectively, for the prior year. For the three months ended September 30, 2024, the decrease in interest and other expense was primarily due to lower average interest rates on outstanding borrowings. Interest and other expense decreased for the nine month period, as the prior year period ended September 30, 2023 included a noncash charge of $18.2 million for the estimated future credit losses on the seller financing notes receivable. Income Tax Expense For the three and nine months ended September 30, 2024, our effective income tax rates of 15.3% and 13.4%, respectively, included the favorable effects of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction. In addition, for the nine months ended September 30, 2024, our effective income tax rate included the favorable effect of a change in the assessment of the need for a valuation allowance related to certain foreign tax credit carryforwards. 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. In December 2022, the EU Member States formally adopted the Pillar Two Directive, which generally provides for a global minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. We do not expect the Pillar Two Directive to have any significant effect on our financial statements. Net Income Attributable to Global Payments Net income attributable to Global Payments was $315.1 million and $1,003.2 million, respectively, for the three and nine months ended September 30, 2024 compared to $361.8 million and $624.9 million, respectively, for the prior year, reflecting the changes noted above. Diluted Earnings per Share Diluted earnings per share was $1.24 and $3.92, respectively, for the three and nine months ended September 30, 2024 compared to $1.39 and $2.39, respectively, for the prior year. Diluted earnings per share for the three and nine months ended September 30, 2024 reflects the changes in net income. 39 Table of Contents Liquidity and Capital Resources We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing. In the ordinary course of our business, a significant portion of our liquidity comes from operating cash flows and borrowings, including the capacity under our revolving credit facility. Our capital allocation priorities are to pay dividends, to repurchase shares of our common stock, to pursue acquisitions that meet our corporate objectives, to make planned capital investments in our business and to pay principal and interest on our outstanding debt. Our significant contractual cash requirements also include ongoing payments for lease liabilities and contractual obligations related to service arrangements with suppliers for fixed or minimum amounts, which primarily relate to software, technology infrastructure and related services. Commitments under 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." For additional information regarding our other cash commitments and contractual obligations, see "Note 7—Leases" and “Note 19—Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, 2023. Our capital plan objectives are to support our operational needs and strategic plan for long-term growth while optimizing our cost of capital and financial position. To supplement cash from operating activities, we use a combination of bank financing, such as borrowings under our credit facilities, commercial paper program and senior note issuances, for general corporate purposes and to fund acquisitions. Our commercial paper program provides a cost effective means of addressing our short-term liquidity needs and 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. Finally, specialized lines of credit are also used in certain of our markets to fund merchant settlement prior to receipt of funds from the card networks. We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future through the issuance of debt or equity or by other means. Accumulated cash balances are invested in high-quality, marketable short-term instruments. 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 September 30, 2024, we had cash and cash equivalents totaling $2,941.9 million. Of this amount, we considered $888.4 million to be available for general purposes, of which $64.7 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States. The available cash of $888.4 million does not include the following: (i) settlement-related cash balances, (ii) funds held as collateral for merchant losses ("Merchant Reserves") and (iii) certain funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted in their use; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. 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. 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 $197.6 million as of September 30, 2024, representing amounts under legal restriction, 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. 40 Table of Contents Operating activities provided net cash of $2,879.3 million and $1,591.3 million for the nine months ended September 30, 2024 and 2023, respectively, which reflect net income adjusted for noncash items, including depreciation, amortization, the provision for credit losses and charges associated with the net loss on business dispositions, and changes in operating assets and liabilities. The increase in cash flows from operating activities from the prior year was due to 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 $846.6 million and $4,119.7 million during the nine months ended September 30, 2024 and 2023, respectively. Cash used for investing activities primarily represents cash used to fund acquisitions and capital expenditures. During the nine months ended September 30, 2024 and 2023, we used cash of $373.8 million and $4,099.8 million, respectively, for acquisitions. We made capital expenditures of $490.9 million and $500.8 million during the nine months ended September 30, 2024 and 2023, 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 approximate $670.0 million during the year ending December 31, 2024. Investing cash flows for the nine months ended September 30, 2024 includes cash received from the sale of our investments in Visa common shares of $18.1 million. 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 initial 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. Financing activities include borrowings and repayments made under our various debt arrangements, as well as borrowings and repayments made under specialized lines of credit to fund daily settlement activities. Our borrowing arrangements are further described in "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, cash distributions made to our shareholders and cash contributions from and distributions to noncontrolling interests. We used net cash in financing activities of $1,151.1 million during the nine months ended September 30, 2024, and financing activities provided net cash of $2,458.4 million during the nine months ended September 30, 2023. Proceeds from long-term debt were $7,637.9 million and $8,861.1 million for the nine months ended September 30, 2024 and 2023, respectively. Repayments of long-term debt were $5,803.0 million and $7,628.9 million for the nine months ended September 30, 2024 and 2023, 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 senior notes, finance leases and other vendor financing arrangements. During the nine months ended September 30, 2024 and 2023, we had net repayments of $1,367.9 million and net borrowings of $1,900.0 million, respectively, under our commercial paper program. Furthermore, in connection with the issuance of convertible notes in February 2024, we paid $256.3 million to purchase privately negotiated capped call transactions to hedge the potential dilutive effect upon conversion of the notes, or offset our cash obligation if the cash settlement option were to be elected. 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 nine months ended September 30, 2024 and 2023, we had net repayments of $184.5 million and $33.3 million, respectively, under our settlement lines of credit. We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase programs. During the nine months ended September 30, 2024 and 2023, we used $900.0 million and $418.3 million, respectively, to repurchase shares of our common stock. The share repurchase activity for the nine months ended September 30, 2024 included the repurchase of 1,414,759 shares using a portion of the net proceeds from our offering of 1.500% convertible unsecured senior notes due March 2031 through privately negotiated transactions with purchasers of notes in the offering, or one of their respective affiliates. The purchase price per share of the common stock repurchased in such transactions equaled the closing price of the common stock on February 20, 2024, which was $130.80 per share. 41 Table of Contents As of September 30, 2024, the remaining amount available under our share repurchase program was $1,371.9 million. On October 24, 2024, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $2.5 billion. We paid dividends to our common shareholders in the amounts of $190.5 million and $195.6 million during the nine months ended September 30, 2024 and 2023, respectively. We made distributions to noncontrolling interests in the amount of $29.4 million and $24.3 million during the nine months ended September 30, 2024 and 2023, respectively. Long-Term Debt and Lines of Credit Senior Notes We have $11.7 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. 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. Convertible Notes On February 23, 2024, we issued $2.0 billion in aggregate principal amount of 1.500% convertible unsecured senior notes due March 2031 through a private placement. The net proceeds from this offering were approximately $1.97 billion reflecting debt issuance costs of $33.5 million, which were capitalized and reflected as a reduction of the related carrying amount of the convertible notes in our consolidated balance sheet. Interest on the convertible notes is payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024, to the holders of record on the preceding February 15 and August 15, respectively. Prior to December 1, 2030, the notes are convertible at the option of the holders only under certain conditions, including: (i) if the last reported sale price of our common stock has been at least 130% of the conversion price for at least 20 trading days within the last 30 consecutive trading days of the immediately preceding calendar quarter; (ii) for a five business day period following a ten-day consecutive trading period where the trading price of the notes is less than 98% of the product of the last reported sale price of our common stock and the conversion rate; (iii) if we call any or all of the notes for redemption; or (iv) upon the occurrence of certain corporate events. On or after December 1, 2030, the notes are convertible at the option of the holders at any time until the second scheduled trading day prior to the maturity date. The conversion rate for the notes is initially 6.371 shares of common stock per $1,000 in principal amount of the notes (which is equal to an initial conversion price of approximately $156.96 per share), subject to customary adjustments upon the occurrence of certain events. Upon conversion, the principal amount of, and interest due on, the convertible notes are required to be settled in cash and any other amounts may be settled in shares, cash or a combination of shares and cash at our election. We may not redeem the notes prior to March 6, 2028. On or after March 6, 2028, we have the option to redeem all or any portion of the notes for cash if the last reported sale price of our common stock has been at least 130% of the conversion price for at least 20 trading days within the last 30 consecutive trading day period at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. If certain corporate events that constitute a fundamental change (as defined in the indenture governing the notes) occur, any holder of the notes may require that we repurchase all or a portion of their notes for cash at a purchase price equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the indenture governing the notes) occur, then the conversion rate will in certain circumstances be increased. The notes include customary covenants for notes of this type, as well as customary events of default, which may result in the acceleration of the maturity of the convertible notes. In connection with the issuance of the notes, we entered into privately negotiated capped call transactions with certain of the initial purchasers of the notes and other financial institutions to cover, subject to customary adjustments, the number of shares of common stock initially underlying the notes. The economic effect of the capped call transactions is to hedge the potential dilutive effect upon the conversion of the notes, or offset our cash obligation if the cash settlement option is elected, for amounts in excess of the principal amount of converted notes subject to a cap. The initial cap price of the capped call transactions is $228.90 per share. The capped call transactions meet the accounting criteria to be reflected in stockholders’ 42 Table of Contents equity and not accounted for as derivatives. The cost of $256.3 million incurred in connection with the capped call transactions was reflected as a reduction to paid-in-capital in our consolidated balance sheet as of September 30, 2024, net of applicable income taxes. We also have $1.5 billion in aggregate principal amount of 1.000% convertible notes due August 2029, which were issued during 2022 in a private placement pursuant to an investment agreement with Silver Lake Partners. Interest on the convertible notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2023, to the holders of record on the preceding February 1 and August 1, respectively. The convertible notes mature on August 15, 2029, subject to earlier conversion or repurchase. The notes, which are currently convertible, are presented within long-term debt in our consolidated balance sheet based on our intent and ability to refinance on a long-term basis should a conversion event occur. Revolving Credit Facility Our revolving credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents, provides for an unsubordinated unsecured $5.75 billion revolving credit facility that matures in August 2027. We may issue standby letters of credit of up to $250.0 million in the aggregate under the revolving credit facility. Outstanding letters of credit under the revolving credit facility reduce the amount of borrowings available to us. The amounts available to borrow under the revolving credit facility are also determined by a financial leverage covenant. As of September 30, 2024, there were borrowings of $1.5 billion outstanding under the revolving credit facility with an interest rate of 6.56%, and the total available commitments under the revolving credit facility were $4.2 billion. Commercial Paper We have 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. 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. Commercial paper notes are expected to be issued at a discount from par, or they may bear interest, each at commercial paper market rates dictated by market conditions at the time of their issuance. The proceeds from issuances of commercial paper notes will be used primarily for general corporate purposes but may also be used for acquisitions, to pay dividends, for debt refinancing or for other purposes. As of September 30, 2024 , we ha d no borrowings outstanding under our commercial paper program. Compliance with Covenants The convertible notes include customary covenants and events of default for convertible notes of this type. The revolving credit agreement contains customary affirmative covenants and restrictive covenants, including, among others, financial covenants based on net leverage and interest coverage ratios, and customary events of default. The required leverage ratio was increased as a result of the acquisition of EVO, and will gradually step-down over eight quarters to the original required ratio of 3.75 to 1.00. As of September 30, 2024, the required leverage ratio was 4.25 to 1.00, and the required interest coverage ratio was 3.00 to 1.00. We were in compliance with all applicable covenants as of September 30, 2024. 43 Table of Contents Settlement Lines of Credit In various markets where we do business, we have specialized lines of credit that are restricted for use in funding settlement. The settlement lines of credit generally have variable interest rates, are subject to annual review and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. For certain of our lines of credit, the available credit is increased by the amount of cash we have on deposit in specific accounts with the lender. Accordingly, the amount of the outstanding lines of credit may exceed the stated credit limit. As of September 30, 2024, a total of $75.9 million of cash on deposit was used to determine the available credit. As of September 30, 2024, we had $788.1 million outstanding under these lines of credit with additional capacity to fund settlement of $2,203.7 million. During the three months ended September 30, 2024, the maximum and average outstanding balances under these lines of credit were $996.4 million and $534.8 million, respectively. The weighted-average interest rate on these borrowings was 5.63% at September 30, 2024. 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. Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted 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. See "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the accompanying unaudited consolidated financial statements for a discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted. Forward-Looking Statements Some of the statements we use in this report, and in some of the documents we incorporate by reference in this report, contain forward-looking statements concerning our business operations, economic performance and financial condition, including, but not limited to, statements we make regarding our business strategy and means to implement the strategy; measures of future results of operations, such as revenues, expenses, operating margins, income tax rates, and earnings per share; other operating metrics such as shares outstanding and capital expenditures, liquidity, deleveraging plans and capital available for allocation; statements we make regarding guidance and projected financial results for the year 2024; the effects of general economic conditions on our business; statements about the benefits of our acquisitions or divestitures, such as the proposed sale of AdvancedMD, Inc., including future financial and operating results and the successful integration of acquisitions, statements about the completion of anticipated benefits or strategic or operational initiatives; statements regarding our success and timing in developing and introducing new services and expanding our business; and other statements regarding our future financial performance and the company's plans, objectives, expectations and intentions. You can sometimes identify forward-looking statements by our use of the words "believes," "anticipates," "expects," "intends," "plan," "forecast," "guidance" and similar expressions. 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. 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. Accordingly, we cannot guarantee that our plans and expectations will be achieved. Our actual revenues, revenue growth rates and margins, and other results of operations could differ materially from those anticipated in our forward-looking statements as a result of many known and unknown factors, many of which are beyond our ability to predict or control. Important factors that may otherwise cause actual events or results to differ materially from those anticipated by such forward-looking statements or historical performance include, among others, the effects of global economic, political, market, health and social events or other conditions; foreign currency exchange, inflation and rising interest rate risks; difficulties, delays and higher than anticipated costs related to integrating the businesses of acquired companies, including with respect to implementing controls to prevent a material security breach of any internal systems or to successfully manage credit and fraud risks in business units; our ability to complete the proposed sale of AdvancedMD, Inc. on the proposed terms or on the anticipated timeline, or at all; the effect of a security breach or operational failure on our business; failing to comply with the 44 Table of Contents applicable requirements of Visa, Mastercard or other payment networks or card schemes or changes in those requirements; the ability to maintain Visa and Mastercard registration and financial institution sponsorship; the ability to retain, develop and hire key personnel; the diversion of management’s attention from ongoing business operations; the continued availability of capital and financing; increased competition in the markets in which we operate and our ability to increase our market share in existing markets and expand into new markets; our ability to safeguard our data; risks associated with our indebtedness; our ability to meet environmental, social and governance targets, goals and commitments; the potential effects of climate change, including natural disasters; 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, 2023 and subsequent filings we make with the SEC, including this 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. Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. While we may elect to update or revise forward-looking statements at some time in the future, we specifically disclaim any obligation to publicly release the results of any revisions to our forward-looking statements, except as required by law. ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a discussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in our Annual Report on Form 10-K for the year ended December 31, 2023.