Correspondence 0001123360-24-000038 from GLOBAL PAYMENTS INC (GPN)
GLOBAL PAYMENTS INC
Date: Nov. 8, 2024 · CIK: 0001123360 · Accession: 0001123360-24-000038
AI Filing Summary & Sentiment
File numbers found in text: 001-16111
Referenced dates: October 3, 2024
Letter
Division of Corporation Finance Attn: Robert Shapiro and Lyn Shenk Re: Global Payments Inc. Form 10-K for Fiscal Year Ended December 31, 2023 File No. 001-16111
Dear Mr. Shapiro and Mr. Shenk:
We hereby respond to the comments of the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”), as set forth in the Staff’s letter of comments dated October 3, 2024 (the “Comment Letter”), to the above referenced filing of Global Payments Inc. (the “Company”). The Company has filed, via EDGAR, this letter (tagged Correspondence).
The Company has the following responses to the Staff’s comments in the Comment Letter. For your convenience, we have reproduced in italics below each comment from the Comment Letter with the response following.
Form 10-K for Fiscal Year Ended December 31, 2023
Other
Earnings slide deck dated February 14, 2024
Reconciliation of Non-GAAP Financial Measures, page 9
1.We note “net revenue adjustments” primarily consist of adjustments for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. Please tell us the nature of these payments and where they are classified in your statements of income.
RESPONSE:
The adjustments to revenues for gross-up related payments include the following:
•Monthly residual payments to independent sales organizations or other external partners, representing an ongoing share of the customer profitability for referral of merchant services to us. In these arrangements, we are primarily responsible for the payment processing obligation to the merchant. The residual is considered a payment for marketing and sales services provided by the third party and does not qualify for capitalization as an incremental cost to obtain a contract with a customer under ASC 340-40. The residual is reflected as a component of selling, general and administrative expenses in the consolidated statements of income.
•Payments made for out-of-pocket expenses that are reimbursed by customers in our Issuer Solutions segment. Out-of-pocket reimbursables include items such as postage and other production items (e.g., cards) that are not distinct from the core processing performance obligation provided to the customer. The out-of-pocket expenses are reflected as a component of cost of service in the consolidated statements of income.
U.S. Securities and Exchange Commission
Page 2
Other
Earnings call transcript dated February 14, 2024, page 7
2.In prepared remarks, you stated Issuer Solutions performance declined compared to the prior year due to a difficult comparison resulting from vendor benefits reflected in that period. Please tell us the nature of these vendor benefits, quantify the amounts for us, and tell us how you account for them.
RESPONSE:
During the fourth quarter of 2022, we received a price adjustment credit from a vendor in settlement of a dispute related to the quality of prior professional services provided to us. We considered the guidance in ASC 705-20-25-10 to 12 relating to consideration received from a vendor and ASC 450-30 relating to gain contingencies to determine the appropriate accounting treatment for the credit. The retrospective price adjustment was negotiated and received during the fourth quarter of 2022, and we recognized the credit in the period received, resulting in an approximate $7 million reduction against the original costs reflected in selling, general and administrative expenses within the Issuer Solutions segment.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022, page 42
3.We note your response to prior comment 1. Regarding results of operations discussion and analysis, you state you primarily list factors in order of magnitude, provide quantitative data where material to an understanding of results, and use qualitative language that provides context for the relative magnitude of factors.
While listing factors in order of magnitude and using qualitative language is not objectionable in and of itself, it is an indirect and less useful way to provide needed information to your investors. We believe investors are best served by direct and clear quantification of all material factors driving results.
In this regard, we note your intended, revised disclosure continues to either not quantify certain factors at all or to sometimes quantify them in an indirect manner, such as by references to percentages of accounts balances or by stating them in terms of basis points. We believe you should make it easy for investors to obtain quantified impacts of factors, by stating them in absolute dollars.
You also state you will quantify significant contributing factors where: (a) you describe two or more factors and (b) to the extent such information is available and appropriate to enhance investors’ understanding of the magnitude of the impact of each factor. It would appear unlikely that you would be able to attribute a change in results to a factor while not having quantification of such factor. In addition, we are not aware of circumstances in which it would not be appropriate to provide quantification to investors of information that is available internally to, and used by, management.
Excluding the three sentences that repeat revenue amounts and percentage changes already disclosed in the immediately preceding table on page 41, your original discussion and analysis of revenues in your Form 10-K was limited to three brief sentences, none of which included a single
U.S. Securities and Exchange Commission
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quantification of factors affecting revenue results. For a company with the size and breadth of operations as yours, we do not believe that this brief disclosure adequately discussed and analyzed your results sufficient to provide your investors with the depth of understanding and knowledge necessary to properly evaluate your results.
As such, we believe you should revise your disclosure and consider:
•relying on tables to present dollar and percentage changes in accounts, rather than including and repeating such information in narrative text form;
•using additional tables to list, quantify, and sum all of the material individual factors to which changes in accounts are attributable;
•refocusing the narrative text portion of the disclosure on analysis of the underlying business reasons for the individual factors in the tables above;
•ensuring that all material factors are quantified and analyzed; and
•quantifying the effects of changes in price, volume, and acquisitions/dispositions on revenues and expense categories, where appropriate.
Please provide us with a copy of your intended, revised disclosure.
RESPONSE:
We acknowledge the Staff’s comment. In consideration of this comment, we enhanced our MD&A disclosures in our Quarterly Report on Form 10-Q for the period ended September 30, 2024. These enhancements included the quantification of significant contributing factors where we describe two or more factors relating to a material change in a financial statement line item, including the effects of our acquisitions and divestitures, along with the underlying business reasons for the key factors. We will similarly supplement our MD&A disclosures in future filings.
We believe our proposed revised disclosure below includes a discussion of the material factors relevant to the changes, including the related quantification in the form of dollars and/or percentages that will provide the reader with an understanding of our results in the context of the changes being explained. For example, we believe that explaining changes in cost of service and selling, general and administrative expenses each as a percentage of revenues is most meaningful to an investor’s understanding of the relative movement in operating expenses and related effect on operating margins. We acknowledge the Staff’s suggestion to include a tabular format, and we respectfully believe that a narrative format is permitted by Item 303 of Regulation S-K, which allows us to highlight the material trends through the eyes of management in a format consistent with how management views the business. In addition, given the operating leverage of our business, we think that it is most useful to investors to describe and quantify certain changes in terms of percentages rather than stating them as absolute dollars.
Presented below for illustrative purposes is an excerpt from the MD&A section of the Annual Report on Form 10-K for the year ended December 31, 2023, marked to show an example of the enhanced disclosure approach we intend to take in our future filings (additions to existing language are in bold and deletions are in strikethrough):
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
U.S. Securities and Exchange Commission
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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 amortization of intangible assets, 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.
Revenues
Consolidated revenues for the year ended December 31, 2023 increased by $678.9 million, or 7.6% to $9,654.4 million, compared to from $8,975.5 million in for the prior year. The increase in revenues was primarily due to an increase in transaction volumes, including from the EVO business acquired in 2023.
We divested our consumer business in April 2023 resulting in a reduction in revenues in the year ended December 31, 2023 of $437.7 million compared to the prior year.
Merchant Solutions Segment. Revenues from our Merchant Solutions segment for the year ended December 31, 2023 increased by $946.9 million, or 15.3% to $7,151.8 million, compared to from $6,204.9 million in for the prior year. The increase in revenues was primarily due to
For the year ended December 31, 2023, our relationship-led distribution channel contributed $549.5 million to segment revenue growth, primarily driven by an increase in transaction volumes, including from the EVO business, and growth in subscription and software revenue.
For the year ended December 31, 2023, our technology-enabled distribution channel contributed $397.4 million to segment revenue growth, primarily driven by transaction volume, including from the EVO business.
For the year ended December 31, 2023, the net effect of our acquisition and divestiture activities in Merchant Solutions contributed approximately 8.6% growth to Merchant Solutions, primarily due to the revenues of the EVO business acquired in March 2023. The effect of the divestiture activities was relatively insignificant. The revenues of the EVO business include the cross-selling of our service offerings into the acquired EVO customer base and other benefits to revenues from initiatives of the combined organization.
Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the year ended December 31, 2023 increased by $153.2 million, or 6.8% to $2,398.9 million, compared to from $2,245.6 million in for the prior year. The increase in revenues was primarily due to an increase in transaction volumes.
U.S. Securities and Exchange Commission
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Operating Expenses
Cost of Service. Cost of service for the year ended December 31, 2023 decreased by $51.1 million, or 1.4%, to was $3,727.5 million, compared to from $3,778.6 million in for the prior year. Cost of service as a percentage of revenues decreased to 38.6% for the year ended December 31, 2023, compared to from 42.1% in for the prior year . Compared to the prior year, cost of service for the year ended December 31, 2023 decreased primarily due to continued 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 EVO business, including the related amortization of acquired intangibles. Cost of service included amortization of acquired intangibles of $1,318.5 million and $1,263.0 million for the years ended December 31, 2023 and 2022, respectively. for a decrease of 3.5%, of which approximately 1.5% was 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 of the acquired EVO business on cost of service as a percentage of revenues was insignificant. The remaining improvement in cost of service as a percentage of revenues was due to improved operating leverage in the business and as a result of prudent expense management related to professional services and facilities costs, which declined an aggregate $28.4 million.
The most significant component of our cost of service is amortization expense, which was $1,318.5 million and $1.263.0 million, or approximately 35% and 33% of consolidated cost of service for the years ended December 31, 2023 and 2022, respectively. Together with depreciation expense, these costs represented approximately 42% and 40% of consolidated cost of service for the years ended December 31, 2023 and 2022, respectively. These costs generally do not vary in proportion to changes in revenues, but rather are most significantly affected by acquisition activities. The acquired EVO business was the primary driver of the increase in amortization and depreciation expense during the year ended December 31, 2023.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2023 increased by $549.2 million, or 15.6% to $4,073.8 million, compared to from $3,524.6 million in for the prior year. Selling, general and administrative expenses as a percentage of revenues was 42.2% for the year ended December 31, 2023, compared to 39.3% in for the prior year. The increase in selling, general and administrative expenses was primarily due to an increase in variable selling and other costs related to the increase in revenues and the inclusion of costs for the EVO business. In addition, the increase was driven by the effects of higher
For the year ended December 31, 2023, selling general and administrative expenses as a percentage of revenues increased 2.9% primarily as a result of the operating costs of our acquired and divested businesses, each of which contributed approximately 1% to the increase, as the acquired businesses had a higher cost as a percentage of revenues and the divested business had a lower cost as a percentage of revenues relative to our existi
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Global Payments Inc.
3550 Lenox Road NE
30th Floor
Atlanta, GA 30026
USA
770.829.8000
globalpayments.com
November 8, 2024
U.S. Securities and Exchange Commission
Division of Corporation Finance
100 F Street N.E.
Washington, D.C. 20549
Attn: Robert Shapiro and Lyn Shenk
Re: Global Payments Inc.
Form 10-K for Fiscal Year Ended December 31, 2023
File No. 001-16111
Dear Mr. Shapiro and Mr. Shenk:
We hereby respond to the comments of the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”), as set forth in the Staff’s letter of comments dated October 3, 2024 (the “Comment Letter”), to the above referenced filing of Global Payments Inc. (the “Company”). The Company has filed, via EDGAR, this letter (tagged Correspondence).
The Company has the following responses to the Staff’s comments in the Comment Letter. For your convenience, we have reproduced in italics below each comment from the Comment Letter with the response following.
Form 10-K for Fiscal Year Ended December 31, 2023
Other
Earnings slide deck dated February 14, 2024
Reconciliation of Non-GAAP Financial Measures, page 9
1.We note “net revenue adjustments” primarily consist of adjustments for gross-up related payments (included in operating expenses) associated with certain lines of business to reflect economic benefits to the company. Please tell us the nature of these payments and where they are classified in your statements of income.
RESPONSE:
The adjustments to revenues for gross-up related payments include the following:
•Monthly residual payments to independent sales organizations or other external partners, representing an ongoing share of the customer profitability for referral of merchant services to us. In these arrangements, we are primarily responsible for the payment processing obligation to the merchant. The residual is considered a payment for marketing and sales services provided by the third party and does not qualify for capitalization as an incremental cost to obtain a contract with a customer under ASC 340-40. The residual is reflected as a component of selling, general and administrative expenses in the consolidated statements of income.
•Payments made for out-of-pocket expenses that are reimbursed by customers in our Issuer Solutions segment. Out-of-pocket reimbursables include items such as postage and other production items (e.g., cards) that are not distinct from the core processing performance obligation provided to the customer. The out-of-pocket expenses are reflected as a component of cost of service in the consolidated statements of income.
U.S. Securities and Exchange Commission
Page 2
Other
Earnings call transcript dated February 14, 2024, page 7
2.In prepared remarks, you stated Issuer Solutions performance declined compared to the prior year due to a difficult comparison resulting from vendor benefits reflected in that period. Please tell us the nature of these vendor benefits, quantify the amounts for us, and tell us how you account for them.
RESPONSE:
During the fourth quarter of 2022, we received a price adjustment credit from a vendor in settlement of a dispute related to the quality of prior professional services provided to us. We considered the guidance in ASC 705-20-25-10 to 12 relating to consideration received from a vendor and ASC 450-30 relating to gain contingencies to determine the appropriate accounting treatment for the credit. The retrospective price adjustment was negotiated and received during the fourth quarter of 2022, and we recognized the credit in the period received, resulting in an approximate $7 million reduction against the original costs reflected in selling, general and administrative expenses within the Issuer Solutions segment.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022, page 42
3.We note your response to prior comment 1. Regarding results of operations discussion and analysis, you state you primarily list factors in order of magnitude, provide quantitative data where material to an understanding of results, and use qualitative language that provides context for the relative magnitude of factors.
While listing factors in order of magnitude and using qualitative language is not objectionable in and of itself, it is an indirect and less useful way to provide needed information to your investors. We believe investors are best served by direct and clear quantification of all material factors driving results.
In this regard, we note your intended, revised disclosure continues to either not quantify certain factors at all or to sometimes quantify them in an indirect manner, such as by references to percentages of accounts balances or by stating them in terms of basis points. We believe you should make it easy for investors to obtain quantified impacts of factors, by stating them in absolute dollars.
You also state you will quantify significant contributing factors where: (a) you describe two or more factors and (b) to the extent such information is available and appropriate to enhance investors’ understanding of the magnitude of the impact of each factor. It would appear unlikely that you would be able to attribute a change in results to a factor while not having quantification of such factor. In addition, we are not aware of circumstances in which it would not be appropriate to provide quantification to investors of information that is available internally to, and used by, management.
Excluding the three sentences that repeat revenue amounts and percentage changes already disclosed in the immediately preceding table on page 41, your original discussion and analysis of revenues in your Form 10-K was limited to three brief sentences, none of which included a single
U.S. Securities and Exchange Commission
Page 3
quantification of factors affecting revenue results. For a company with the size and breadth of operations as yours, we do not believe that this brief disclosure adequately discussed and analyzed your results sufficient to provide your investors with the depth of understanding and knowledge necessary to properly evaluate your results.
As such, we believe you should revise your disclosure and consider:
•relying on tables to present dollar and percentage changes in accounts, rather than including and repeating such information in narrative text form;
•using additional tables to list, quantify, and sum all of the material individual factors to which changes in accounts are attributable;
•refocusing the narrative text portion of the disclosure on analysis of the underlying business reasons for the individual factors in the tables above;
•ensuring that all material factors are quantified and analyzed; and
•quantifying the effects of changes in price, volume, and acquisitions/dispositions on revenues and expense categories, where appropriate.
Please provide us with a copy of your intended, revised disclosure.
RESPONSE:
We acknowledge the Staff’s comment. In consideration of this comment, we enhanced our MD&A disclosures in our Quarterly Report on Form 10-Q for the period ended September 30, 2024. These enhancements included the quantification of significant contributing factors where we describe two or more factors relating to a material change in a financial statement line item, including the effects of our acquisitions and divestitures, along with the underlying business reasons for the key factors. We will similarly supplement our MD&A disclosures in future filings.
We believe our proposed revised disclosure below includes a discussion of the material factors relevant to the changes, including the related quantification in the form of dollars and/or percentages that will provide the reader with an understanding of our results in the context of the changes being explained. For example, we believe that explaining changes in cost of service and selling, general and administrative expenses each as a percentage of revenues is most meaningful to an investor’s understanding of the relative movement in operating expenses and related effect on operating margins. We acknowledge the Staff’s suggestion to include a tabular format, and we respectfully believe that a narrative format is permitted by Item 303 of Regulation S-K, which allows us to highlight the material trends through the eyes of management in a format consistent with how management views the business. In addition, given the operating leverage of our business, we think that it is most useful to investors to describe and quantify certain changes in terms of percentages rather than stating them as absolute dollars.
Presented below for illustrative purposes is an excerpt from the MD&A section of the Annual Report on Form 10-K for the year ended December 31, 2023, marked to show an example of the enhanced disclosure approach we intend to take in our future filings (additions to existing language are in bold and deletions are in strikethrough):
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
U.S. Securities and Exchange Commission
Page 4
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 amortization of intangible assets, 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.
Revenues
Consolidated revenues for the year ended December 31, 2023 increased by $678.9 million, or 7.6% to $9,654.4 million, compared to from $8,975.5 million in for the prior year. The increase in revenues was primarily due to an increase in transaction volumes, including from the EVO business acquired in 2023.
We divested our consumer business in April 2023 resulting in a reduction in revenues in the year ended December 31, 2023 of $437.7 million compared to the prior year.
Merchant Solutions Segment. Revenues from our Merchant Solutions segment for the year ended December 31, 2023 increased by $946.9 million, or 15.3% to $7,151.8 million, compared to from $6,204.9 million in for the prior year. The increase in revenues was primarily due to
For the year ended December 31, 2023, our relationship-led distribution channel contributed $549.5 million to segment revenue growth, primarily driven by an increase in transaction volumes, including from the EVO business, and growth in subscription and software revenue.
For the year ended December 31, 2023, our technology-enabled distribution channel contributed $397.4 million to segment revenue growth, primarily driven by transaction volume, including from the EVO business.
For the year ended December 31, 2023, the net effect of our acquisition and divestiture activities in Merchant Solutions contributed approximately 8.6% growth to Merchant Solutions, primarily due to the revenues of the EVO business acquired in March 2023. The effect of the divestiture activities was relatively insignificant. The revenues of the EVO business include the cross-selling of our service offerings into the acquired EVO customer base and other benefits to revenues from initiatives of the combined organization.
Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the year ended December 31, 2023 increased by $153.2 million, or 6.8% to $2,398.9 million, compared to from $2,245.6 million in for the prior year. The increase in revenues was primarily due to an increase in transaction volumes.
U.S. Securities and Exchange Commission
Page 5
Operating Expenses
Cost of Service. Cost of service for the year ended December 31, 2023 decreased by $51.1 million, or 1.4%, to was $3,727.5 million, compared to from $3,778.6 million in for the prior year. Cost of service as a percentage of revenues decreased to 38.6% for the year ended December 31, 2023, compared to from 42.1% in for the prior year . Compared to the prior year, cost of service for the year ended December 31, 2023 decreased primarily due to continued 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 EVO business, including the related amortization of acquired intangibles. Cost of service included amortization of acquired intangibles of $1,318.5 million and $1,263.0 million for the years ended December 31, 2023 and 2022, respectively. for a decrease of 3.5%, of which approximately 1.5% was 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 of the acquired EVO business on cost of service as a percentage of revenues was insignificant. The remaining improvement in cost of service as a percentage of revenues was due to improved operating leverage in the business and as a result of prudent expense management related to professional services and facilities costs, which declined an aggregate $28.4 million.
The most significant component of our cost of service is amortization expense, which was $1,318.5 million and $1.263.0 million, or approximately 35% and 33% of consolidated cost of service for the years ended December 31, 2023 and 2022, respectively. Together with depreciation expense, these costs represented approximately 42% and 40% of consolidated cost of service for the years ended December 31, 2023 and 2022, respectively. These costs generally do not vary in proportion to changes in revenues, but rather are most significantly affected by acquisition activities. The acquired EVO business was the primary driver of the increase in amortization and depreciation expense during the year ended December 31, 2023.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2023 increased by $549.2 million, or 15.6% to $4,073.8 million, compared to from $3,524.6 million in for the prior year. Selling, general and administrative expenses as a percentage of revenues was 42.2% for the year ended December 31, 2023, compared to 39.3% in for the prior year. The increase in selling, general and administrative expenses was primarily due to an increase in variable selling and other costs related to the increase in revenues and the inclusion of costs for the EVO business. In addition, the increase was driven by the effects of higher
For the year ended December 31, 2023, selling general and administrative expenses as a percentage of revenues increased 2.9% primarily as a result of the operating costs of our acquired and divested businesses, each of which contributed approximately 1% to the increase, as the acquired businesses had a higher cost as a percentage of revenues and the divested business had a lower cost as a percentage of revenues relative to our existi