TSYS (NYSE: TSS) today reported results for the first quarter of 2017.

“We are extremely pleased to report an outstanding beginning to 2017 with across the board high double digit growth in our consolidated revenues, income and earnings per share in the first quarter. We continue to execute on our strategy of diversification and growth of our businesses while maintaining our leadership in technology, product innovation and service to our customers,” said M. Troy Woods, chairman and chief executive officer of TSYS.

Highlights for the first quarter of 2017:

  • Total revenues were $1.2 billion, an increase of 60.2% over last year’s $739.4 million.
  • Net revenue (non-GAAP), which excludes reimbursable items, interchange and assessment expenses, was $832.9 million, an increase of 24.0% over last year’s $671.6 million.
  • Net income attributable to TSYS common shareholders was $105.9 million, an increase of 16.8% over last year’s $90.6 million. Diluted earnings per share were $0.57, an increase of 16.1% over last year’s $0.49.
  • Adjusted earnings (non-GAAP) were $152.3 million, an increase of 26.1% over last year’s $120.7 million. Adjusted diluted earnings per share (non-GAAP) were $0.82, an increase of 25.4% over last year’s $0.66.
  • Adjusted EBITDA (non-GAAP) was $287.2 million, an increase of 24.4% over last year’s $230.8 million.

Increasing 2017 Outlook

“As a result of our strong first quarter performance and the six-month delay in the effective date of the CFPB's rule governing prepaid accounts, we are increasing our revenue and EPS guidance for 2017. We are raising our total revenue and net revenue guidance by $20 million as a result of the rule's delay. We are also raising our EPS guidance by $0.11 per share,” said Woods.

The 2017 revised guidance is below.

         

2017 Revised
Financial Outlook
Range

   

 

Percent

Change

 
(in millions, except per share amounts)      
Revenue:
Total revenues (GAAP) $4,770 to $4,870 14% to 17%
Net revenue (non-GAAP) $3,295 to $3,395 8% to 12%
 
Earnings per share:
Diluted EPS (GAAP) $2.25 to $2.32 30% to 34%

Adjusted diluted EPS attributable to TSYS common shareholders (non-GAAP)

$3.16

to

$3.26

13%

to

17%

Weighted average diluted shares

 

185

 

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, April 25. The conference call can be accessed via simultaneous Internet broadcast on the “Investor Relations” section of TSYS’ website at investors.tsys.com where an accompanying slide presentation will also be available. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call.

Non-GAAP Measures

This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of its consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.

Additional information about non-GAAP financial measures, including, but not limited to, net revenue, adjusted earnings, adjusted EBITDA and adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included on pages 11 to 14 in the financial schedules of this release.

About TSYS

TSYS® (NYSE: TSS) is a leading global payments provider, offering seamless, secure and innovative solutions across the payments spectrum — from issuer processing and merchant acquiring to prepaid program management. We succeed because we put people, and their needs, at the heart of every decision. It’s an approach we call ‘People-Centered Payments®’.

Our headquarters are located in Columbus, Ga., U.S.A., with approximately 11,500 team members and local offices spread across 13 countries. TSYS generated revenue of $4.2 billion in 2016, while processing more than 25.5 billion transactions. We are a member of The Civic 50 and were named one of the 2017 World's Most Ethical Companies by Ethisphere magazine. TSYS is a member of the S&P 500 and routinely posts all important information on its website. For more, visit tsys.com.

Forward-Looking Statements

This press release contains “forward-looking statements” – that is, statements related to future, not past, events. Forward-looking statements often address our expected future business and financial performance and often contain words such as “expect,” “anticipate,” “intend,” “believe,” “should,” “plan,” “potential,” “will,” “could,” and similar expressions. These forward-looking statements include, among others, statements regarding TSYS’ earnings guidance for 2017 total revenues, net revenue, diluted EPS and adjusted diluted EPS, and the assumptions underlying such statements. These statements are based on the current beliefs and expectations of TSYS’ management, are based on management’s assumptions and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements. A number of important factors could cause actual results or events to differ materially from those contemplated by our forward-looking statements in this press release. Many of these factors are beyond TSYS’ ability to control or predict. These factors include, but are not limited to, the material breach of security of any of TSYS’ systems; TSYS’ ability to integrate acquisitions and achieve the anticipated growth opportunities and other benefits of the acquisitions, particularly the TransFirst acquisition; the effect of current domestic and worldwide economic conditions; risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates, and in particular with respect to the current environment, adverse developments with respect to foreign currency exchange rates as a result of the United Kingdom’s decision to leave the European Union (Brexit); expenses incurred associated with the signing of a significant client; TSYS does not convert clients’ portfolios as scheduled; the deconversion of a significant client; changes occur in laws, rules, regulations, credit card association rules, prepaid industry rules or other industry standards affecting TSYS and our clients that may result in costly new compliance burdens on TSYS and our clients and lead to a decrease in the volume and/or number of transactions processed or limit the types and amounts of fees that can be charged to customers, and in particular the CFPB’s new rule regarding prepaid financial products; the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; adverse developments with respect to the payment card industry in general, including a decline in the use of cards as a payment mechanism; and growth rates of TSYS’ existing clients are lower than anticipated or attrition rates of existing clients are higher than anticipated. Additional risks and other factors that could cause actual results or events to differ materially from those contemplated in this release can be found in TSYS’ filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. TSYS disclaims any obligation to update any forward-looking statements as a result of new information, future developments or otherwise except as required by law.

     
                   
TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)
 
Three Months Ended
March 31,
Percent
2017 2016 Change
 
Total revenues $ 1,184,725 739,378 60.2 %
 
Cost of services* 861,856 484,507 77.9
Selling, general and administrative expenses* 155,686   103,184   50.9
Total expenses 1,017,542   587,691   73.1
 
Operating income 167,183 151,687 10.2
 
Nonoperating expenses* (29,903 ) (22,098 ) (35.3 )
 

Income before income taxes, noncontrolling interests and equity in income of equity investments

137,280 129,589 5.9
Income taxes 43,082   43,429   (0.8 )

Income before noncontrolling interests and equity in income of equity investments

94,198 86,160 9.3
Equity in income of equity investments, net of tax* 12,909   6,248   nm
Net income 107,107 92,408 15.9
Net income attributable to noncontrolling interests (1,239 ) (1,780 ) 30.4
 
Net income attributable to TSYS common shareholders $ 105,868   90,628   16.8 %
 
Earnings per share (EPS):
Basic EPS $ 0.58   0.49   16.4 %
 
Diluted EPS $ 0.57   0.49   16.1 %
 
Weighted average shares outstanding:
(includes participating securities)
Basic 183,880   183,256  
Diluted 184,938   183,886  
 
Dividends declared per share $ 0.10   0.10  
 

Non-GAAP measures:**

Net revenue $ 832,892   671,644   24.0 %
 
Adjusted EBITDA $ 287,237   230,829   24.4 %
 
Adjusted earnings $ 152,265   120,710   26.1 %
 
Adjusted diluted EPS $ 0.82   0.66   25.4 %
 

* Certain prior year amounts have been reclassified between nonoperating expenses and equity in income of equity investments, net of tax and between cost of services and selling, general and administrative expenses.

** See reconciliation of non-GAAP measures.
nm = not meaningful
 
 
   
TSYS
Segment Breakdown
(unaudited)
(in thousands)
         
Three Months Ended March 31,
Change
2017   2016   $   %
Operating income: (a) $ 167,183 151,687 15,496 10.2 %
Share-based compensation 9,047 8,158 889 10.9
TransFirst M&A expenses 4,868 3,401 1,467 43.1
Litigation, claims, judgments or settlements 1,961 - 1,961 na
Acquisition intangible amortization 55,167     22,921     32,246   nm
Adjusted operating income (b) $ 238,226     186,167     52,059   28.0 %
 
Adjusted segment operating income:
Issuer Solutions (c) $ 133,873 135,077 (1,204 ) (0.9 ) %
Merchant Solutions (d) 91,279 38,357 52,922 nm
Netspend (e) 48,648 42,201 6,447 15.3
Corporate admin and other (35,574 )   (29,468 )   (6,106 ) (20.7 )
Adjusted segment operating income $ 238,226     186,167     52,059   28.0 %
 
Total revenues: (f) $ 1,184,725 739,378 445,347 60.2 %
Less: reimbursable items, interchange and assessments expenses 351,833     67,734     284,099   nm
Net revenue (g) 832,892 671,644 161,248 24.0
Intersegment revenues 12,389     11,969     420   3.5
Segment net revenue $ 845,281     683,613     161,668   23.6 %
 
Segment net revenue:
Issuer Solutions (h) $ 387,255 378,009 9,246 2.4 %
Merchant Solutions (i) 260,561 120,612 139,949 nm
Netspend (j) 197,465     184,992     12,473   6.7
Segment net revenue $ 845,281     683,613     161,668   23.6 %
 
Operating margin (GAAP): (a)/(f) 14.11 %   20.52 %
 
Adjusted operating margin on net revenue: (b)/(g) 28.60 %   27.72 %
 
Adjusted segment operating margin on net revenue:
Issuer Solutions (c)/(h) 34.57 %   35.73 %
Merchant Solutions (d)/(i) 35.03 %   31.80 %
Netspend (e)/(j) 24.64 %   22.81 %
 
Segment external net revenue:
Issuer Solutions $ 375,529 366,884 8,645 2.4 %
Merchant Solutions 260,305 120,561 139,744 nm
Netspend 197,058     184,199     12,859   7.0
Segment external net revenue $ 832,892     671,644     161,248   24.0 %
nm = not meaningful
na = not applicable
 
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
           
Three Months Ended March 31,
Change
2017   2016   $   %
Depreciation and amortization:
Issuer Solutions $ 36,853 35,619 1,234 3.5 %
Merchant Solutions 7,022 5,050 1,972 39.0
Netspend 4,092   3,110   982 31.6
Segment depreciation and amortization 47,967 43,779 4,188 9.6
Acquisition intangible amortization 55,167 22,921 32,246 nm
Corporate admin and other 1,044   883   161 18.2

Total depreciation and amortization

$ 104,178   67,583   36,595 54.1 %
 
 
 

Segment statistical data:

 

Issuer Solutions

Total transactions (in millions) 4,876.6 4,587.9 288.7 6.3 %
Total Accounts on file (AOF) (in millions) 762.0 750.5 11.5 1.5 %
Total Traditional AOF (in millions) 532.3 488.8 43.5 8.9 %
 

Merchant Solutions

Point-of-sale transactions (in millions) 1,127.7 1,091.0 36.7 3.4 %
Dollar sales volume (in millions) $ 29,120.4 11,783.4 17,337.0 nm %
Net revenue per transaction $ 0.231 0.111 0.120 nm %
 

Netspend

Gross dollar volume (in millions) $ 9,607.2 9,161.5 445.7 4.9 %
Direct deposit 90-day active cards (in thousands) 2,854.0 2,789.2 64.8 2.3 %
90-day active cards (in thousands) 5,147.4 4,881.6 265.8 5.4 %
% of 90-day active cards with direct deposit 55.4% 57.1%
 
nm = not meaningful
 
 
 
TSYS
Condensed Balance Sheet
(unaudited)
(in thousands)
   
March 31, 2017 December 31, 2016
Assets
Current assets:
Cash and cash equivalents $ 464,740 425,354
Accounts receivable, net 405,746 432,847
Other current assets 180,325 164,488
Total current assets 1,050,811 1,022,689
Goodwill 3,272,237 3,270,952
Software and other intangible assets, net 1,268,403 1,329,864
Property and equipment, net 281,430 282,345
Other long term assets 477,799 460,327
Total assets $ 6,350,680 6,366,177
 
Liabilities
Current liabilities:
Accounts payable $ 45,656 38,712
Long-term borrowings and capital leases 33,097 50,727
Other current liabilities 373,505 330,914
Total current liabilities 452,258 420,353
Long-term borrowings and capital leases, excluding current portion 3,229,137 3,313,276

Deferred income tax liabilities

419,786 419,552
Other long-term liabilities 90,032 88,983
Total liabilities 4,191,213 4,242,164
Redeemable noncontrolling interest 14,737 24,093
Equity 2,144,730 2,099,920
Total liabilities and equity $ 6,350,680 6,366,177
 
   
 
TSYS
Selected Cash Flow Highlights
(unaudited)
(in thousands)
 
Three Months Ended March 31,
2017 2016
Cash flows from operating activities:
Net income $ 107,107 92,408

Adjustments to reconcile net income to net cash provided by operating activities:

Equity in income of equity investments, net of tax (12,909 ) (6,248 )
Depreciation and amortization 104,178 67,583
Amortization of debt issuance costs 1,079 10,386
Share-based compensation 9,047 8,158
Deferred income tax expense 891 20,156
Other noncash adjustments 16,916 8,719
Changes in operating assets and liabilities 33,852   (55,334 )
Net cash provided by operating activities 260,161   145,828  
 
Purchases of property and equipment (12,240 ) (9,940 )
Additions to licensed computer software from vendors (5,162 ) (4,894 )
Additions to internally developed computer software (7,355 ) (8,544 )
Additions to contract acquisition costs (7,668 ) (21,010 )
Other investing activities (379 ) -  
Net cash used in investing activities (32,804 ) (44,388 )
 

Principal payments on long-term borrowings and capital lease obligations

(104,654 ) (304,654 )
Proceeds from long-term borrowings - 1,796,295
Debt issuance costs - (26,592 )
Purchase of noncontrolling interests (70,000 ) (5,879 )
Dividends paid on common stock (18,333 ) (18,283 )
Proceeds from exercise of stock options 4,207 626
Other financing activities (769 ) 499  
Net cash (used in) provided by financing activities (189,549 ) 1,442,012  
 
Cash and cash equivalents:
Effect of exchange rate changes on cash and cash equivalents 1,578   (669 )
Net increase in cash and cash equivalents 39,386 1,542,783
Cash and cash equivalents at beginning of period 425,354   389,328  
Cash and cash equivalents at end of period $ 464,740   1,932,111  
 
Supplemental
Capital expenditures $ 32,425   44,388  
Free cash flow (non-GAAP)* $ 227,736   101,440  
 
* See reconciliation of non-GAAP measures.
 
 
 
TSYS
Supplemental Information
(unaudited)
     
Other
AOF: Total Accounts on File
(in millions)

At
March 2017

 

At
March 2016

  %

Change

Consumer 450.0 414.8 8.5
Commercial 50.0 46.3 8.0
Other 32.3     27.7   16.5
Traditional AOF 532.3 488.8 8.9
Prepaid*/Stored Value 54.1 103.1 (47.6 )
Government Services 90.3 82.7 9.2
Commercial Card Single Use 85.3     75.9   12.5
Total AOF 762.0     750.5   1.5
* Prepaid does not include Netspend accounts
 

Growth in Accounts on File (in millions):

March 2016 to

March 2017

  March 2015 to

March 2016

Beginning balance 750.5 723.7
Change in accounts on file due to:
Internal growth of existing clients 51.8 52.3
New clients 23.3 43.1
Purges/Sales (16.6 ) (24.3 )
Deconversions (47.0 )   (44.3 )
Ending balance 762.0     750.5  
 
 
Reconciliation of GAAP to Non-GAAP Financial Measures
 
Non-GAAP Measures
 
The schedules below provide a reconciliation of revenues and operating results on a constant currency basis to reported revenues and operating income. This non-GAAP measure presents first quarter 2017 financial results using the previous year’s foreign currency exchange rates. On a constant currency basis, TSYS’ total revenues for the first quarter of 2017 grew 61.7% as compared to a reported GAAP increase of 60.2%.
 
The schedules below also provide a reconciliation of diluted EPS to adjusted diluted EPS.
 
The schedules below also provide a reconciliation of net income to EBITDA and adjusted EBITDA.
 
The schedules below also provide a reconciliation of cash flows from operating activities and capital expenditures to free cash flow.
 
The schedules below also provide a reconciliation of 2017 guidance of total revenues to net revenue and diluted EPS to adjusted diluted EPS.
 
The tax rate used in the calculation of adjusted diluted EPS for the quarter and year is equal to an estimate of our annual effective tax rate on GAAP income. This effective rate is estimated annually and may be adjusted during the year to take into account events or trends that materially impact the effective tax rate including, but not limited to, significant changes resulting from tax legislation, material changes in the mix of revenues and expenses by entity and other significant events.
 
TSYS believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate TSYS’ ongoing business operations. TSYS believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of TSYS’ current and ongoing business operations.
 
Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation.
 
TSYS believes that its provision of non-GAAP financial measures provides investors with important key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.
 
 
Reconciliation of GAAP to Non-GAAP
 
Constant Currency Comparison
(unaudited)
(in thousands)
         
Three Months Ended March 31,
Percent
2017   2016   Change

Consolidated

Constant currency (1) $ 1,195,848 739,378 61.7 %
Foreign currency impact (2) (11,123 )   -
Total revenues $ 1,184,725     739,378 60.2 %
 
Constant currency (1) $ 843,231 671,644 25.5 %
Foreign currency impact (2) (10,339 )   -
Net revenue $ 832,892     671,644 24.0 %
 
Constant currency (1) $ 171,971 151,687 13.4 %
Foreign currency impact (2) (4,788 )   -
Operating income $ 167,183     151,687 10.2 %
 

Issuer Solutions

Constant currency (1) $ 448,235 429,713 4.3 %
Foreign currency impact (2) (11,118 )   -
Total revenues $ 437,117     429,713 1.7 %
 
Constant currency (1) $ 397,590 378,009 5.2 %
Foreign currency impact (2) (10,335 )   -
Net revenue $ 387,255     378,009 2.4 %
 
(1) Reflects current period results on a non-GAAP basis as if foreign currency rates did not change from the comparable prior year period.
(2) Reflects the impact of calculated changes in foreign currency rates from the comparable period.
     
Net Revenue
(unaudited)
(in thousands)
 
Three Months Ended March 31,
Percent
2017   2016   Change
Total revenues $ 1,184,725 739,378 60.2 %
Less: reimbursable items, interchange and assessments expenses 351,833     67,734 nm
Net revenue $ 832,892     671,644 24.0 %
 
nm = not meaningful
 
 
Reconciliation of GAAP to Non-GAAP
 
Adjusted Diluted Earnings per Share
(unaudited)
(in thousands, except per share data)
   
Three Months Ended March 31,
Percent
2017   2016   Change

Net income attributable to TSYS common shareholders

 $ 105,868 90,628 16.8 %
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization $ 55,002 22,645 nm
Add: Share-based compensation 9,041 8,149 10.9
Add: TransFirst M&A expenses* 4,825 13,183 (63.4 )
Add: Litigation, claims, judgments or settlements** 1,961 - na
Less: Tax impact of adjustments*** (24,432 )   (13,895 ) (75.8 )
Adjusted earnings $ 152,265     120,710   26.1 %
 

Diluted EPS - Net income attributable to TSYS common shareholders

As reported (GAAP) $ 0.57     0.49   16.1 %
 
Adjusted diluted EPS $ 0.82     0.66   25.4 %
 
Weighted average diluted shares outstanding 184,938     183,886  
 

* Costs associated with the TransFirst acquisition and integration that are included in selling, general and administrative expenses and nonoperating expenses.

** Litigation settlement or settlement discussions and related legal expenses in the 1st quarter.

*** Certain of these merger and acquisition costs are nondeductible for income tax purposes. Income tax impact includes a discrete item as a result of the acquisition.

 
Adjusted EBITDA
(unaudited)
(in thousands)
 
Three Months Ended March 31,
Percent
2017   2016   Change
Net income $ 107,107 92,408 15.9 %
Adjust for:
Less: Equity in income of equity investments (12,909 ) (6,248 ) nm
Add: Income taxes 43,082 43,429 (0.8 )
Add: Nonoperating expense 29,903 22,098 35.3
Add: Depreciation and amortization 104,178     67,583   54.1
EBITDA $ 271,361 219,270 23.8 %
Adjust for:
Add: Share-based compensation 9,047 8,158 10.9
Add: TransFirst M&A expenses* 4,868 3,401 43.1
Add: Litigation, claims, judgments or settlements 1,961     -   na
Adjusted EBITDA $ 287,237     230,829   24.4 %
 

* Costs associated with the TransFirst acquisition and integration that are included in selling, general and administrative expenses.

nm = not meaningful
na = not applicable
 
 
Reconciliation of GAAP to Non-GAAP
 
Free Cash Flow
(unaudited)
(in thousands)
  Three Months Ended      
Free cash flow: March 31,
2017         2016
   
Net cash provided by operating activities (GAAP) $ 260,161 145,828
Capital expenditures (32,425 ) (44,388 )
Free cash flow (non-GAAP) $ 227,736   101,440  
 
 
Revised Guidance Summary
(unaudited)
(in millions, except per share data)
 
 
Revenue: 2017 % Change
 
Total revenues (GAAP) $ 4,770 to $ 4,870 14 % to 17 %

Less: reimbursable items, interchange and assessments expenses

1,475     to     1,475  
Net revenue (non-GAAP) $ 3,295 to $ 3,395 8 % to 12 %
 
 
Earnings per share (EPS):
 
Diluted EPS (GAAP) $ 2.25 to $ 2.32 30 % to 34 %

Acquisition intangible amortization, share-based compensation, litigation, claims, judgments or settlements and TransFirst M&A expenses, less the tax impact of adjustments

0.91     to     0.94  

Adjusted diluted EPS attributable to TSYS common shareholders* (non-GAAP)

$ 3.16 to $ 3.26 13 % to 17 %
 
* Weighted average diluted shares outstanding 185