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This article appears in the Oct. 8, 2009, edition of ISO&Agent Weekly.
Robust performance in the U.S. ISO channel and benefits from international acquisitions helped bolster Global Payments Inc.'s fiscal first-quarter results despite difficult economic conditions, according to the Atlanta-based payments processor.
Global Payments had "a strong rebound of growth from our major large ISOs," Paul Garcia, Global Payments chairman and CEO, told analysts during a conference call last week. "I think they've plowed their way through a difficult market."
Global payments' merchant-service business "has a significant component that is driven by the ISOs," says Greg Smith, managing director in equity research at Duncan-Williams Inc., a Memphis, Tenn.-based investment-banking firm. The processor's bottom line over the past few quarters "has been surprisingly robust in this environment from a revenue perspective. That is despite the fact that the average ticket has fallen," Smith says.
Global Payments posted net income of $57.8 million for the fiscal first quarter ended Aug. 31, up 0.5% from $57.5 million during the same period a year ago. Revenue totaled of $441.3 million, up 8.7% from $405.8 million.
"Macroeconomic conditions have caused our average ticket amounts to decline across all of our geographies compared to prior year, with the U.S. experiencing the greatest decline in average ticket," said Garcia. "The U.S. trend continues to be driven by a combination of weakened consumer spending, the industry shift of increasing debit transactions and the continued addition of merchants with smaller average tickets through our ISO channel."
Global Payments experienced U.S. transaction growth of 20% during the quarter, said Garcia. While the processor does not separate credit and debit transactions, Garcia noted that debit is growing "a little bit" faster than credit.
"A little more than half of our transactions combined are signature debit and PIN, and still PIN debit is substantially below 10% of our total transactions," he said. Global Payments also does not reveal the total number of transactions it processes.
"Transaction growth has held up quite well," says Smith. "They clearly have to be gaining market share. There's no other explanation for it."
Global Payments also works with many of the largest ISOs, which tend to be more aggressive, he says. "Their key ISOs customers are gaining share as well," says Smith.
Acquisitions
Global Payments also acquired on Sept. 28 Auctionpay, a Portland, Ore.-based technology business that provides software, technology and processing for not-for-profit organizations, according to Garcia.
Auctionpay is a "great example" of a company that operates with focused technology in a niche market and does not employ salespeople paid on commission, said Garcia, noting Global Payments is interested primarily in acquiring such companies.
The processor is unlikely to acquire ISOs that have "very traditional models with commission-only salespeople," said Garcia. "They go after successful verticals and add some value add and build very nice businesses," but "that's not a business that I think you're going to see us acquiring."
Merchant Services Segments
The processor's North America Merchant Services segment posted revenue of $303.9 million, up 6% from $286.6 million during the fiscal first quarter last year. A strong performance from Global Payments' ISO channel and "some modest U.S. pricing initiatives" offset unfavorable Canadian currency-exchange rates in the North American segment, said Garcia. U.S. merchant-services revenue reached $222.8 million, up 11% from $200.7 million last year. Canadian operations generated revenue of $81.2 million, a decrease of 5.5% from $85.9 million.
Global Payments' acquisition in June 2008 of HSBC's UK business contributed to a 28.7% revenue increase for the International Merchant Services segment to $105.9 million from $82.3 million last year. United Card Services in Russia also "performed better than anticipated," said Garcia. Within the segment, European operations posted revenue of $80.5 million, up 30.7% from $61.6 million last year. Asia-Pacific revenue grew 23.2%, to $25.5 million from $20.7 million in part because of the September 2008 addition of operations in the Philippines.
The company's funds transfer business "continues to face challenges and macroeconomic headwinds as well as immigrant labor trends," said Garcia. The segment posted first-quarter revenue of $31.4 million, a decrease of 14.7% from $36.8 million during the same quarter last year.
