A booming merchant-services business that includes independent sales organizations helped Global Payments Inc. generate double-digit growth in fiscal third-quarter revenue and net income.
The Atlanta-based transaction processor posted net income of $40.1 million in the quarter ended Feb. 29, up 17% from $34.3 million during the same period a year earlier. Revenue rose 19% to $310.6 million from $260.4 million.
Global Payments' domestic direct business, which includes ISOs, generated $171.4 million in revenue, up 26% from $135.9 million.
Global Payments' outlook appears "very solid," says Robert Dodd, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co. Inc.
However, Wall Street has some concerns about the company's ability to sustain that growth, Dodd tells ISO&Agent Weekly.
"The biggest knock is the ISO business is almost growing too fast" at Global Payments, Dodd says. Revenue from ISOs tends to have a lower profit margin for Global Payments than other parts of the company's business, partly because ISOs want lower processing prices.
"That's having a dragging effect on margins," Dodd notes. He did not characterize the issue as debilitating. "There's no question the growth there is a positive," Dodd said. "It means they're gaining share."
Global Finds its ISOs are Growing
In response to a question during an analyst conference call last week, Paul R. Garcia, Global Payments chairman, president and CEO, praised his company's ISOs.
"We do have a number of big ISOs who continue to…go from strength to strength," Garcia said. "But we are also signing smaller ISOs who I believe are going to be successful, and some we signed a couple of years ago are growing to be quite sizeable themselves."
The ISOs will continue to grow for the time being, but expansion eventually will slow, he said.
ISO "growth is very important to us," Garcia continued. "It's a very profitable business. But, over time, you can't grow at this amount." As other parts of Global Payments grow, ISOs' relative importance to profits will lessen, he adds.
Meanwhile, Global Payments is enabling its ISOs to begin processing cards from Discover Financial Services for their merchants.
In December, the company activated the first group of ISOs–including EVO Merchant Services, Mercury Payment Systems, North American Bancard and Total Merchant Services (ISO&Agent Weekly, 12/6/07).
Garcia says Global Payments is continuing to enable more of its ISOs to process Discover cards and expects by August to activate all of the remaining ISOs that have been with the processor for at least a year.
Outside of the United States, Global Payments continues to experience double-digit revenue growth. The largest increase was in the Asia-Pacific region, where Global and London-based banking giant HSBC jointly operate a transaction-processing business whose revenue grew by 29%, to $19 million from $14.7 million.
Revenue from Central and Eastern European operations also was up 19%, to $14.5 million from $12.2 million. Global also experienced growth in Canada, where third-quarter revenue totaled $61.3 million, a 12.3% increase from $54.6 million during the same period a year ago.
