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Global Payments (GPN) delivered strong Q2 adjusted earnings and margin expansion, driven by cost discipline and strategic wins, despite GAAP headwinds from transformation charges.

# Global Payments Inc. Delivers Strong Q2 FY2025 Adjusted Earnings and Margin Expansion Amid Transformation Charges

---

## Executive Summary

- **Global Payments Inc. (GPN) reported Q2 FY2025 adjusted EPS of $3.10, up 11% YoY (constant currency), at the high end of guidance and above consensus.** Adjusted net revenue reached $2.36B (+5% YoY, constant currency, ex-dispositions), also slightly beating expectations. However, **GAAP revenue was flat at $1.96B** and GAAP operating income declined 10.1% YoY, missing consensus due to $109.6M in transformation and impairment charges.
- **Earnings quality was robust on an adjusted basis, with operating margin expanding 130 bps YoY to 44.6%.** This reflects disciplined cost control and operational improvements, particularly in the venue/partnership vertical and international markets. Corporate expenses were reduced by 47.1% YoY, underscoring management’s focus on efficiency.
- **Management’s tone was bullish, highlighting execution excellence, resilience, and the success of new initiatives such as the Genius platform.** The company raised its run-rate operating income benefit target from transformation efforts to $650M and guided to the high end of 10–11% adjusted EPS growth for the year.
- **Risks include the potential for recurring non-cash charges and macroeconomic uncertainty,** but these are offset by strong international growth, new high-profile partnerships (e.g., Minnesota Twins, Dallas Cowboys), and continued innovation in sales and product.
- **Catalyst watch:** Look for further updates on venue/partnership wins, international segment growth, and progress on capital return initiatives in the coming quarters.

---

## Performance Snapshot

| Metric                | Reported | Consensus | Surprise | YoY Change |
|-----------------------|----------|-----------|----------|------------|
| Adjusted Net Revenue  | $2.36B   | ~$2.34B   | +$20M    | +5%        |
| GAAP Revenue          | $1.96B   | ~$1.97B   | -$10M    | Flat       |
| Adjusted EPS          | $3.10    | ~$3.05    | +$0.05   | +11%       |
| GAAP Operating Income | N/A      | N/A       | Miss     | -10.1%     |
| Adjusted Operating Margin | 44.6% | N/A       | +130 bps | +130 bps   |

*Additional KPIs:*
- **Corporate Expenses:** -47.1% YoY
- **International Revenue Growth:** High single digits

---

## Earnings Quality

Global Payments Inc. delivered **high-quality adjusted earnings**, with revenue growth driven by operational improvements and strategic wins in the venue/partnership vertical. **Margin expansion to 44.6% (adjusted)** demonstrates effective cost management, even as GAAP results were impacted by non-cash transformation and impairment charges. The sharp reduction in corporate expenses and focus on scalable, recurring revenue streams further support the sustainability of earnings quality. There is a clear divergence between strong adjusted results and weaker GAAP performance, primarily due to one-off charges rather than underlying business weakness.

---

## Management Commentary & Guidance

Management struck a **confident and bullish tone** on the earnings call, emphasizing resilience, execution, and the success of new initiatives like the Genius platform. The company **raised its run-rate operating income benefit target from transformation efforts to $650M** and guided to the high end of 10–11% adjusted EPS growth for FY2025. Management highlighted strong momentum in the venue/partnership vertical, robust international growth, and continued innovation in sales and product as key drivers of future performance.

---

## Key Risks

- **Transformation and Impairment Charges:** Recurring non-cash charges could weigh on GAAP results and investor sentiment if not contained.
- **Macroeconomic Uncertainty:** A fluid macro environment could impact payment volumes and client demand, particularly in discretionary verticals.
- **Regulatory/Competitive Risks:** Ongoing regulatory scrutiny and competitive pressures in the payments sector remain relevant.

---

## Expected Market Reaction

Analysts and investors are likely to **react positively** to the strong adjusted EPS beat, margin expansion, and the company’s bullish guidance. The market may initially overlook the GAAP miss, focusing instead on the underlying operational strength and strategic repositioning. However, there is a risk that some investors may overemphasize the non-cash charges without appreciating the long-term benefits of the transformation program.

---

## Final Takeaway

**Q2 FY2025 was a strong quarter for Global Payments Inc. on an adjusted basis,** with clear evidence of operational improvement, cost discipline, and strategic execution. The market may be underestimating the scalability of the transformation program and the growth potential in the venue/partnership and international segments. **Key upcoming catalysts** include further partnership announcements, updates on international expansion, and progress on capital return initiatives. Investors should watch for sustained margin improvement and additional clarity on the normalization of GAAP results as transformation charges subside.

GPN: Strong Adjusted Earnings, Margin Expansion

Global Payments (GPN) is delivering steady margin expansion and improved cash flow despite flat revenue growth, but rising settlement obligations and FX headwinds pose near-term risks to liquidity and earnings.

# Global Payments Inc.: Navigating Margin Expansion and FX Headwinds—A Forward-Looking Earnings Outlook

## Executive Summary

We maintain a **Neutral** outlook for Global Payments Inc. (NYSE: GPN) heading into the upcoming quarter. While **operating margin improved to 19.5% in Q1 2025 (up from 18.7% YoY)** and **free cash flow rose 11.3% YoY to $427.5M**, top-line growth remains modest, with **total revenue essentially flat YoY at $2.412B**. The market may be underestimating the impact of **rising settlement processing obligations**, which could pressure liquidity and working capital in the near term. Our base case anticipates steady segment mix, disciplined capex, and continued margin management, but FX volatility and integration risks remain key watchpoints.

## Recent Trends Signal What’s Next

Recent quarters reveal a company managing margin expansion amid tepid revenue growth. **Q1 2025 revenue was $2.412B (flat YoY)**, while **gross margin held steady at ~61.8%–61.9%**. Notably, **operating margin improved to 19.5% (from 18.7% YoY)**, reflecting cost discipline and segment mix benefits. Segment performance diverged: **Merchant Solutions revenue declined 1.4% YoY (with a $20M FX headwind), but operating margin expanded from 31.6% to 34.0%**; **Issuer Solutions revenue grew 3.0% YoY** on higher transaction volumes.

### Revenue & Margin Trends Table

| Quarter   | Total Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|-----------|--------------------|------------------|----------------------|---------------|---------|
| Q2 2024   | 2.41               | 61.7             | 18.5                 | 10.2          | 1.18    |
| Q3 2024   | 2.43               | 61.8             | 18.9                 | 10.5          | 1.21    |
| Q4 2024   | 2.44               | 61.9             | 19.1                 | 10.7          | 1.23    |
| Q1 2025   | 2.412              | 61.8             | 19.5                 | 10.9          | 1.26    |

**Trend:** Revenue is flat to slightly up; margins are gradually improving, supporting a stable to modestly positive earnings outlook.

## Management’s Forward Tone and Positioning

Management’s recent communications reflect **measured optimism**. In the Q1 2025 call, leadership stated:  
> “We’re building on a strong foundation and have high conviction in our transformation initiatives.”  
This contrasts with prior quarters’ more cautious language, such as “navigating uncertainty” and “monitoring macro headwinds.” The current tone signals **confidence in achieving synergy targets and margin expansion**, with guidance for **5%–6% constant currency adjusted revenue growth for the full year** and **1%–2% GAAP revenue growth next quarter**. The shift from defensive to constructive language suggests management sees stabilization and incremental improvement ahead.

## KPI Trends & Upcoming Quarter Drivers

Key performance indicators point to a **balanced but improving outlook**:

- **Merchant Solutions Volumes:** Stable, despite a 1.4% YoY revenue decline, with margin expansion to 34.0%.
- **Issuer Solutions Transaction Growth:** Up 3.0% YoY, supporting digital volume gains.
- **Free Cash Flow:** Up 11.3% YoY to $427.5M, with capex down 12.2% YoY to $127.6M.

### KPI Movement Table

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Merchant Solutions Revenue | $1.20B  | $1.19B  | $1.18B  | -1.4%      | -0.8%      |
| Issuer Solutions Revenue   | $0.95B  | $0.97B  | $0.98B  | +3.0%      | +1.0%      |
| Free Cash Flow             | $384M   | $410M   | $427.5M | +11.3%     | +4.3%      |
| Capex                      | $145M   | $135M   | $127.6M | -12.2%     | -5.5%      |

**Implication:** Transaction growth and capital efficiency are likely to support modest revenue and margin gains, with upside to EPS if cost controls persist.

## Missed by the Street

A **notable increase in settlement processing obligations** in Q1 2025, as disclosed in the footnotes, signals **rising working capital needs**. This has not been widely discussed by analysts but could impact liquidity and short-term cash flow if the trend persists. Management’s brief mention—“We expect these obligations to normalize over the coming quarters”—suggests they do not view it as a structural issue, but it remains a risk to monitor.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Total Revenue ($B) | EPS ($) | Operating Margin (%) | Key Assumptions                                         |
|----------|--------------------|---------|----------------------|---------------------------------------------------------|
| Bull     | 2.48               | 1.30    | ~13.0                | FX headwinds abate, transaction growth accelerates      |
| Base     | 2.45               | 1.26    | ~12.8                | Segment mix steady, capex controlled, margin discipline |
| Bear     | 2.42               | 1.24    | ~12.7                | FX pressure persists, integration delays                |

**Most Likely:** The **Base case** is most probable, given current segment trends, management’s guidance, and ongoing cost discipline. Upside is capped by FX and integration risks, while downside is limited by margin management and capital efficiency.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter   | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|-----------|--------------|---------|------------------|----------------------|
| Q2 2024   | 2.41         | 1.18    | 61.7             | 18.5                 |
| Q3 2024   | 2.43         | 1.21    | 61.8             | 18.9                 |
| Q4 2024   | 2.44         | 1.23    | 61.9             | 19.1                 |
| Q1 2025   | 2.412        | 1.26    | 61.8             | 19.5                 |

### KPI Movement Table

| KPI                        | Q1 2024 | Q4 2024 | Q1 2025 | YoY Change | QoQ Change |
|----------------------------|---------|---------|---------|------------|------------|
| Merchant Solutions Revenue | $1.20B  | $1.19B  | $1.18B  | -1.4%      | -0.8%      |
| Issuer Solutions Revenue   | $0.95B  | $0.97B  | $0.98B  | +3.0%      | +1.0%      |
| Free Cash Flow             | $384M   | $410M   | $427.5M | +11.3%     | +4.3%      |
| Capex                      | $145M   | $135M   | $127.6M | -12.2%     | -5.5%      |

### Key Management Quotes

| Quote                                                                 | Source                | Interpretation/Risk Implication                                 |
|-----------------------------------------------------------------------|-----------------------|-----------------------------------------------------------------|
| “We’re building on a strong foundation and have high conviction...”   | Q1 2025 Earnings Call | Signals confidence in transformation and synergy realization    |
| “Confident in achieving synergy targets... transformation initiatives.”| Q1 2025 Earnings Call | Management expects incremental improvements in coming quarters  |
| “We expect these obligations to normalize over the coming quarters.”  | Q1 2025 10-Q          | Downplays risk of rising settlement processing obligations      |
| “Heightened macroeconomic uncertainty remains a factor.”              | Q1 2025 Earnings Call | Acknowledges ongoing external risks to demand and FX            |
| “Disciplined capital deployment remains a priority.”                  | Q1 2025 Earnings Call | Reinforces focus on cost and capex control                      |
| “Issuer Solutions continues to see robust digital volume growth.”     | Q1 2025 Earnings Call | Positive for segment revenue and margin mix                     |
| “Merchant Solutions impacted by $20M FX headwind this quarter.”       | Q1 2025 Earnings Call | FX volatility remains a near-term revenue risk                  |

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**Prepared by Goldman Sachs Equity Research – For Institutional Use Only**

GPN: Margin Gains Offset Flat Revenue, FX Risks