Atlanta-based payments technology giant Global Payments (NYSE:GPN) is still struggling to lift revenue as effects of the pandemic wear on. But the company has more than compensated for a weak top line in recent quarters, and Monday's fourth-quarter 2020 earnings report proved consistent with this theme.
Alongside earnings, the company also announced a multi-faceted partnership with Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google. We'll review the specifics of the deal after taking a look at key highlights from the fourth-quarter report.
Softer revenue, rising operating income
Merchant solutions, Global Payment's largest segment, reported a top-line decline of 4.5% against Q4 2019, to $1.2 billion, as the continuing COVID-19 pandemic suppressed card and payments activity among thousands of the company's small merchant clients. This was the largest factor behind a nearly 3% year-over-year drop in total company revenue to $1.93 billion. In the organization's second-largest segment, its issuer solutions business, revenue inched up about a third of a percentage point to $520.2 million. The business and consumer solutions segment generated revenue improvement of 2.6% over the comparable period, to $204.7 million.
Despite these relatively weak top-line figures, Global Payments generated higher operating income in each of its three segments against the prior-year quarter. Total operating income jumped nearly 29% to $252 million. This paved the way for a 78% year-over-year improvement in net income (with some help from lower interest expense and heftier equity income from subsidiaries), and a 79% jump in diluted earnings per share (EPS), to $0.61.
The company's healthier profitability is the result of two primary factors. In Global Payment's earnings conference call, CFO Paul Todd singled out the organization's cost-cutting efforts and the realization of expense synergies from its $21.5 billion mega-merger with card issuer Total System Services, or TSYS, in September 2019. These two factors propelled a year-over-year reduction in cost of services of nearly 11.5% in the fourth quarter.
Global Payments sees further margin tailwinds ahead stemming from the merger. On Monday, management raised its estimated annual expense synergy savings from the TSYS transaction from $375 million to $400 million, marking the third upward adjustment to this target since the merger was completed.
A cloud partner deal
On Monday, Global Payments also revealed that it has inked a multi-year deal with Google to collaborate on payments technology. Google's public-facing business application programming interfaces (APIs) will be linked with Global Payments' payments ecosystem. This will give Global Payments' merchants access to cloud-based, software-as-a-service applications that will help them improve business operations, including data analytics, email marketing, and loyalty programs.
As part of the partnership, Global Payments will move most of its merchant acquiring technology to Google's cloud platform, and it will also become a global merchant acquiring provider to the cloud titan. According to Global Payments, the new relationship will open up significant cross-selling opportunities for both companies.
For the coming year, Global Payments' management is projecting "a return to growth across [all] segments." The company is anticipating net revenue growth of 11% to 13% in 2021, which equates to a top line between $7.5 billion and $7.6 billion. Global Payments expects full-year adjusted EPS of $7.75 to $8.05, which, if achieved, will represent healthy adjusted earnings expansion of 21% to 26%.
In another sign of confidence in the fintech behemoth's near-term future despite the ongoing pandemic, the company has reinstated its share repurchase program, which is currently capped at $1.5 billion. Global Payments plans to execute an accelerated purchase of shares worth $500 million "in the next few days." The significant stock buyback, higher earnings, and Google partnership news barely nudged Global Payments' stock, however. In late afternoon trade on Monday, shares were up just one-third of 1%.