July 26, 2012
The data breach Global Payments Inc. reported earlier this year could cost the merchant processor nearly $120 million, company executives revealed Thursday.
The expenses include an $84.4 million pre-tax charge in the fourth quarter of fiscal 2012 ended May 31 that will cover fines from the payment card networks and initial remediation costs. Chief financial officer David Mangum told stock analysts that the company also anticipates breach-related expenses in fiscal 2013 of $25 million to $35 million net of insurance payments that could total $28 million.
Meanwhile, Global Payments is working with the networks and a so-called Qualified Security Assessor to regain listing on their rosters of processors compliant with the Payment Card Industry data-security standard (PCI). The networks, as they typically do with merchant acquirers after a breach, removed Global from their lists of approved processors although they’re still permitting Global to process transactions. Reinstatement will require the company to upgrade security and otherwise jump through a number of hoops, which chairman and chief executive Paul R. Garcia likened to the second game of a baseball double header.
“I would say that game is probably in the bottom of the second,” Garcia said during Global’s fourth-quarter conference call, adding that he expects reinstatement by Dec. 31, if not sooner.
The first game, according to Garcia, is the company’s internal investigation, and that’s over, he said. But Global shed little new light about what happened. The company has said that no more than 1.5 million card numbers were stolen from its computer systems. Some information about merchant applicants, however, also may have been exposed to hackers.
The $84 million charge and higher operating expenses pushed Global’s fourth-quarter net income attributable to the company down 91% to $5.1 million from $58.6 million a year earlier, even though revenues grew 15% to $597 million. For the fiscal year, Global posted net income of $188.2 million, down 10% from $209.2 million in fiscal 2011, on revenues of $2.2 billion, up 18% from $1.86 billion.
U.S. revenues grew 25% in the fourth quarter to $351.9 million, spurred in part by a good performance from Global’s independent sales organization partners and the beginning of collections from merchants of Visa Inc.’s new Fixed Acquirer Network Fee (FANF). Canada, another big market for the company, however, was a different story, with revenues off 9% to $79 million. Price competition played a role in squeezing North American margins. Global executives say the company plans to shore up its Canadian business partly by becoming a bigger player in e-commerce with dynamic currency conversion and other services.
Meanwhile, Global Payments announced plans to buy out for $242 million British bank HSBC’s 44% interest in the joint Asia-Pacific merchant-acquiring venture the two companies created in 2006. HSBC will refer its business customers in fast-growing Asian countries to Global for payment processing under an exclusive long-term agreement.
SPECIAL FEATURERead Digital Transactions Online